Credit Supply and House Prices: Exploring Discontinuities in Financing Limits of a Government Program in Brazil

Identifying the impact of credit supply on house prices is challenging due to endogeneity. In this paper, we explore discontinuities in the financing limits of the Brazilian Minha Casa, Minha Vida (MCMV) – My Home, My Life... [ view full abstract ]

Identifying the impact of credit supply on house prices is challenging due to endogeneity. In this paper, we explore discontinuities in the financing limits of the Brazilian Minha Casa, Minha Vida (MCMV) – My Home, My Life – program for identification. MCMV is a large-scale government-sponsored subsidized housing program for low-income buyers. MCMV establishes limits to the value of the house eligible for financing. We explore both cross-sectional discontinuities in financing limits according to city population, and time-series changes in the size of the discontinuity. We find that an exogenous increase in financing value of R$25,000 causes an increase of R$7,600 in house prices, a 7% price increase. We find no impact on the number of financed units nor on prices of houses valued sufficiently far from the thresholds. We conducted several placebos and robustness exercises to confirm the validity of our findings