Potential Effects of Subsidy Programs on Housing Affordability: The Cases of Budapest and Moscow

Mortgage markets are coming of age in a number of Eastern Europe and CIS countries. As they do, governments are looking to mortgage-loan associated subsidy schemes to respond to the popular demand for improved housing. This paper presents a detailed examination of the impact of two types of subsidy schemes—mortgage interest rate write-downs, both universal and income-targeted, and income-targeted down payment subsidies—on the housing purchase capacity and the potential demand for mortgage loan volume in two very diverse markets: Budapest and Moscow. An accounting model that performs detailed calculations at the household level using information on household resources (income, savings, and home equity), mortgage terms and conditions, and housing costs (unit prices plus an assortment of closing costs) was developed for the analysis. The down payment subsidy is found to be better in both markets at stimulating housing purchase capacity in terms of efficiency and the distribution of subsidies in favour of moderate-income families.