What happens to renters? Increased financing costs and government support

Abstract

How does the recent hike in interest rates translate into housing markets and shape preferences for government intervention? Homeownership constitutes the most typical form of private wealth accumulation. Yet, with the decade long period of low interest rates ending in 2022, higher financing costs decreased the affordability of ownership substantially. This paper analyzes implications for the political behavior and demands of renters. More specifically, I argue that the effects of the affordability shock hinge upon the importance of asset ownership achieving financial security in a given economy. Using both cross-national survey data and a survey experiment in Germany and the UK, I show that where homeownership is more central to financial security, demand for broad redistribution decreases, whereas support for government intervention in housing markets increase. It appears that in low-ownership societies, citizens see redistribution as the government’s responsibility, whereas in high-ownership societies, they expect government policies to help them build wealth - allowing them to privately provide for themselves. These findings highlight how institutional differences shape preferences for government intervention.