[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/20242977.html
   My bibliography  Save this paper

The aggregate and distributional implications of credit shocks on housing and rental markets

Author

Listed:
  • Paz-Pardo, Gonzalo
  • Castellanos, Juan
  • Hannon, Andrew
Abstract
We build a model of the aggregate housing and rental markets in which houseprices and rents are determined endogenously. Households can choose their housingtenure status (renters, homeowners, or landlords) and the size of their homes dependingon their age, income and wealth. We use our model to study the impact of changesin credit conditions on house prices, rents and household welfare. We analyse theintroduction of policies that limited loan-to-value (LTV) and loan-to-income (LTI) ratiosof newly originated mortgages in Ireland in 2015 and find that, consistent with empiricalevidence, they mitigate house price growth but increase rents. Homeownership ratesdrop, and young and middle-income households are negatively affected by the reform.An unexpected permanent rise in real interest rates has similar effects – by makingmortgages more expensive and alternative investments more attractive for landlords, itincreases rents relative to house prices. JEL Classification: D15, E21, E30, E51, G51

Suggested Citation

  • Paz-Pardo, Gonzalo & Castellanos, Juan & Hannon, Andrew, 2024. "The aggregate and distributional implications of credit shocks on housing and rental markets," Working Paper Series 2977, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242977
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2977~2947e78977.en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gonzalo Paz-Pardo, 2024. "Homeownership and Portfolio Choice over the Generations," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(1), pages 207-237, January.
    2. Lambertini, Luisa & Mendicino, Caterina & Teresa Punzi, Maria, 2013. "Leaning against boom–bust cycles in credit and housing prices," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1500-1522.
    3. Knut Are Aastveit & André K. Anundsen, 2022. "Asymmetric Effects of Monetary Policy in Regional Housing Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(4), pages 499-529, October.
    4. Cristian Badarinza & John Y. Campbell & Tarun Ramadorai, 2018. "What Calls to ARMs? International Evidence on Interest Rates and the Choice of Adjustable-Rate Mortgages," Management Science, INFORMS, vol. 64(5), pages 2275-2288, May.
    5. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2019. "Credit Supply and the Housing Boom," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1317-1350.
    6. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    7. Francisco Amaral & Martin Dohmen & Sebastian Kohl & Moritz Schularick, 2024. "Interest Rates and the Spatial Polarization of Housing Markets," American Economic Review: Insights, American Economic Association, vol. 6(1), pages 89-104, March.
    8. Lyons, Ronan C., 2018. "Credit conditions and the housing price ratio: Evidence from Ireland’s boom and bust," Journal of Housing Economics, Elsevier, vol. 42(C), pages 84-96.
    9. Manuel Arellano & Richard Blundell & Stéphane Bonhomme, 2017. "Earnings and Consumption Dynamics: A Nonlinear Panel Data Framework," Econometrica, Econometric Society, vol. 85, pages 693-734, May.
    10. Kamila Sommer & Paul Sullivan, 2018. "Implications of US Tax Policy for House Prices, Rents, and Homeownership," American Economic Review, American Economic Association, vol. 108(2), pages 241-274, February.
    11. Muñoz, Manuel A., 2020. "Macroprudential policy and the role of institutional investors in housing markets," Working Paper Series 2454, European Central Bank.
    12. Dick Oosthuizen, 2023. "Institutional Housing Investors and the Great Recession," Working Papers 23-22, Federal Reserve Bank of Philadelphia.
    13. Mariacristina De Nardi & Giulio Fella & Gonzalo Paz-Pardo, 2020. "Nonlinear Household Earnings Dynamics, Self-Insurance, and Welfare," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 890-926.
    14. Leonor Queiró & João G. Oliveira, 2023. "Mortgage Borrowing Caps: Leverage, Default, and Welfare," Working Papers w202304, Banco de Portugal, Economics and Research Department.
    15. Emmanuel Farhi & Iván Werning, 2016. "A Theory of Macroprudential Policies in the Presence of Nominal Rigidities," Econometrica, Econometric Society, vol. 84, pages 1645-1704, September.
    16. Giulio Fella, 2014. "A generalized endogenous grid method for non-smooth and non-concave problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 329-344, April.
    17. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 729-752.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2024. "Housing, Distribution, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(5), pages 981-1020, August.
    2. Murphy, Daniel, 2024. "Housing cycles and gentrification," Journal of Monetary Economics, Elsevier, vol. 144(C).
    3. Clodomiro Ferreira & Julio Gálvez & Myroslav Pidkuyko, 2023. "Housing Tenure, Consumption and Household Debt: Life-Cycle Dynamics During a Housing Bust in Spain," Working Papers 285, Red Nacional de Investigadores en Economía (RedNIE).
    4. Andrea Ferrero & Richard Harrison & Benjamin Nelson, 2024. "House Price Dynamics, Optimal LTV Limits and the Liquidity Trap," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 940-971.
    5. Antonia Díaz & Belén Jerez & Juan Pablo Rincón-Zapatero, 2024. "Housing Prices and Credit Constraints in Competitive Search," The Economic Journal, Royal Economic Society, vol. 134(657), pages 220-270.
    6. Antonia Díaz, 2024. "Credit and Inventories in Illiquid Housing Markets," Documentos de Trabajo del ICAE 2024-04, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    7. Julio Gálvez & Gonzalo Paz-Pardo, 2022. "Richer earnings dynamics, consumption and portfolio choice over the life cycle," Working Papers 2241, Banco de España.
    8. repec:cte:werepe:35536 is not listed on IDEAS
    9. Sangyup Choi & Kimoon Jeong & Jiseob Kim, 2024. "Asymmetric Mortgage Channel of Monetary Policy: Refinancing as a Call Option," Working papers 2024rwp-228, Yonsei University, Yonsei Economics Research Institute.
    10. Gonzalo Paz-Pardo, 2024. "Homeownership and Portfolio Choice over the Generations," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(1), pages 207-237, January.
    11. Theresa Kuchler & Monika Piazzesi & Johannes Stroebel, 2022. "Housing Market Expectations," CESifo Working Paper Series 9665, CESifo.
    12. Arellano, Manuel & Blundell, Richard & Bonhomme, Stéphane & Light, Jack, 2024. "Heterogeneity of consumption responses to income shocks in the presence of nonlinear persistence," Journal of Econometrics, Elsevier, vol. 240(2).
    13. Carlos Garriga & Aaron Hedlund, 2019. "Crises in the Housing Market: Causes, Consequences, and Policy Lessons," Working Papers 2019-33, Federal Reserve Bank of St. Louis.
    14. Mirela Sorina Miescu & Giorgio Motta & Dario Pontiggia & Raffaele Rossi, 2023. "The Expansionary Effects Of Housing Credit Supply Shocks," Working Papers 399832231, Lancaster University Management School, Economics Department.
    15. Malmierca, María, 2023. "Optimal macroprudential and fiscal policy in a monetary union," Economic Modelling, Elsevier, vol. 122(C).
    16. Christopher Busch & Alexander Ludwig, 2024. "Higher‐Order Income Risk Over The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1105-1131, August.
    17. Andrea Camilli & Pedro Gomes, 2023. "Public employment and homeownership dynamics," Public Choice, Springer, vol. 194(1), pages 101-155, January.
    18. De Nardi, Mariacristina & Fella, Giulio & Knoef, Marike & Paz-Pardo, Gonzalo & Van Ooijen, Raun, 2021. "Family and government insurance: Wage, earnings, and income risks in the Netherlands and the U.S," Journal of Public Economics, Elsevier, vol. 193(C).
    19. Richard Audoly & Rory McGee & Sergio Ocampo & Gonzalo Paz-Pardo, 2024. "The Life-Cycle Dynamics of Wealth Mobility," Staff Reports 1097, Federal Reserve Bank of New York.
    20. Yuxi Yao, 2023. "Accounting for the decline in homeownership among the young," Contemporary Economic Policy, Western Economic Association International, vol. 41(1), pages 79-102, January.
    21. Pancrazi, Roberto & Pietrunti, Mario, 2019. "Natural expectations and home equity extraction," Journal of Housing Economics, Elsevier, vol. 46(C).

    More about this item

    Keywords

    credit conditions; homeownership; house prices; life-cycle; macro-prudential policy; rental prices;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20242977. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.