The influence of a mortgage interest and capital deduction policy on house prices

Abstract

PurposeSince 2005, Belgian housing prices have strongly increased. As the timing coincides with the implementation of a new fiscal package in order to stimulate homeownership, our study attempts to provide an understanding whether the mortgage interest and capital deduction (MICPD) policy has had the side-effect of increasing housing prices while, at the same time, controlling for key housing price determinants.Design/methodology/approachA fixed-effects regression model is used on a panel dataset of the three Belgian regions over the period 1995–2015.FindingsEstimations are carried out separately for different house types, being useful as our empirical analysis ascertains a significant price-increasing effect for ordinary houses and apartments but a significant price-reducing effect for villas. In addition, we find, among other things, that interest rates' influence has been less substantial than commonly thought.Originality/valueThese results are relevant for all governments willing to stimulate homeownership through fiscal stimuli.