Does mortgage regulation affect speculation in the housing market?

Abstract

This paper examines the contribution of mortgage regulations to changes in housing speculation. By defining speculative behaviour in the housing market as short-term investments with a resale within 12 months, we were able to distinguish the effect from mortgage regulations on condominiums purchased with or without a speculative purpose. Looking at empirical evidence from the Norwegian housing market, we discovered that municipalities with historically high price growth experienced a fall in the relative number of condominiums resold within 12 months. However, we also observed a geographic specific mortgage regulation to trigger a spillover effect, increasing the relative size of speculative transactions in non-regulated neighbouring areas with strong historical price growth.