Homeownership Effects of Alternative Mortgage Instruments*

Abstract

Most of the interest in alternatives to the standard mortgage instrument has centered on the ability of the alternatives to improve on the performance of the mortgage instrument over the business cycle. The focus in this paper is on the long‐term effects on homeownership rates and associated additional residential construction. The instruments are found to offer potentially large increases in homeownership rates by reducing monthly mortgage payments. Widespread adoption of those instruments causing larger payment reductions would allow around one million more households to become owner‐occupants. The demand for new single‐family homes would increase over the long run by 3 to 4 percent a year. Homeownership could be further increased by a time‐limited subsidy directed at moderate income families.