Seminario CEDE - Juan Pablo Uribe

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This paper studies how the housing market in Colombia responds to policies aimed at increasing homeownership among low-income households. Private sector developers received tax incentives to build houses priced below a cutoff, and households received subsidies to buy houses below the same cutoff. The paper models an equilibrium between heterogeneous developers building differentiated housing and heterogeneous households purchasing homes. The model is estimated using bunching around the price cutoff induced by the policies. To benefit from the policy, households buy housing units up to 30 percent smaller and bunch at the policy cutoff. A counterfactual simulation shows that without supply-side incentives, developers may exit the market; their profits would be 14 percent lower.