Resumen de Three essays on the impact of political environment on housing and mortgage markets
My dissertation includes three chapters that focus on the impacts of the political environment on Housing and Mortgage Markets. In Chapter I, I coauthor with Prof. Vergara-Alert, examining the causal effects of political uncertainty on housing markets. We use the U.S. gubernatorial elections from 1982 to 2015 as a source of exogenous variation in political uncertainty and exploit the regional variations in the residential housing markets. Using neighboring states without elections as a control group, we find that higher political uncertainty causes: (1) a decrease in house price growth; (2) a decrease in the number of housing transactions; and (3) an increase in the number of building permits. These effects are stronger during election years, in which the election outcomes present higher uncertainty. We further examine the impact of political uncertainty on the mortgage markets, and we find that both mortgage demand and supply decrease in election years. In Chapter II, I study the effects of state political settings on banks jumbo mortgage lending. A state government is unified if a party controls both the executive branch and the legislative branch; otherwise, it is divided. Depending on state election results, there are three possible political settings: Unified Democratic; Unified Republican; and Divided. It is commonly argued that the Democratic party relies heavily on government regulations to influence the economy, while the Republican party favors minimum government intervention. I find empirical evidence suggesting that banks are more willing to approve illiquid jumbo mortgages under a unified Republican government. Further examination shows that banks with different characteristics differ in their sensitivity to state political settings. Chapter III examines the impacts of state political settings on competition among state-chartered banks in the mortgage markets. In the U.S., the Republican control is associated with increases in deregulation, which often leads to more competition in the markets. In contrast, the Democratic control is associated with reductions in deregulation. Using two measures of market competition including Concentration Ratio and Herfindahl-Hirschman index, I document evidence that competition among state-chartered banks in mortgage markets is stronger in unified Republican states but weaker in unified Democratic states.
