Public policy and its effects on Mexico’s housing industry

Abstract

Purpose

The Mexican housing industry was hindered by a shrinking market and tighter financial conditions related to the Great Recession. Moreover, in 2013, a major change in public policy further modified this industry’s environment. Mexico’s new urban development policy supported inner-city new housing, in contrast to the previous policy that incentivized sprawling. Three out of eight publicly traded housing companies filed for bankruptcy protection in 2013-2014, arguably because of the effects of the Great Recession and the new housing policy. The purpose of this study is to identify firm-level factors that caused some firms to file for bankruptcy protection.

Design/methodology/approach

Three approaches were used to analyze the housing industry in Mexico from 2006 to 2015. First, a policy analysis focused on the new housing policy and its consequences for housebuilding companies. Second, a financial analysis of the two economic shocks was performed in search for the transmission mechanisms in the companies’ financial metrics. Third, a retrospective analysis using the Fisher’s exact test was used to identify variables statistically associated with companies filing for bankruptcy protection.

Findings

There are two features significantly associated with bankruptcy protection: increasing market share while being vertically integrated, as a response to the Great Recession, and the relative magnitude of the loss on firms’ inventory value due to the new public policy. Neither Altman’s Z-score values nor firm size or degree of integration are significantly related to bankruptcy.

Research limitations/implications

The small sample size presented a challenge, as most statistical methodologies require large samples; however, this was overcome by using the Fisher’s exact test.

Originality/value

The main contribution of this paper is the statistical identification of the possible causes for bankruptcy protection in Mexico amongst homebuilding firms in 2013 and 2014, which have not previously been reported in the literature.

Citation

Rodríguez-Reyes, L.R., Trejo-Pech, C.O. and Pasillas-Torres, M. (2019), "Public policy and its effects on Mexico’s housing industry", International Journal of Housing Markets and Analysis, Vol. 12 No. 2, pp. 246-264. https://doi.org/10.1108/IJHMA-09-2018-0072