Leverage Regulation and Housing Inequality

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We estimate an equilibrium model of housing demand and supply, quantifying the distributional effects of leverage regulation on household mobility, access to high-quality housing, debt, and house prices. Using data from Norway (2010-2018), we match household demographics and financial characteristics to housing transactions. Our model incorporates dynamic renting and owning choices, investor portfolio rebalancing, and equilibrium pricing. We recover households’ willingness to pay for housing quality and moving costs. Counterfactual analyses reveal that while tighter loan-to-income (LTI) limits reduce household debt and house prices, they also have regressive effects on mobility. These effects depend on household preferences and financial constraints and can be offset with housing subsidies.