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Housing investment and the user cost of housing in the euro area

Author

Listed:
  • Battistini, Niccolò
  • Gareis, Johannes

Abstract

This box examines the current level of housing investment in the euro area as a whole, and in the four largest euro area economies, in relation to the evolution of the user cost of housing. To this end, the box proposes a novel quarterly measure of the user cost of housing by combining quarterly data on mortgage rates, long-term risk-free interest rates and expected house price growth with information on tax rates and structural characteristics of residential construction and housing finance. Furthermore, we use an empirical model to relate the level of housing investment to the user cost of housing. The model estimates suggest that euro area housing investment at the end of 2023 was still above the level implied by the user cost of housing despite a significant decline and with marked differences across countries. This highlights the possibility of further weakness in euro area housing investment, which could persist for some time if there is no significant decline in the user cost of housing. JEL Classification: E22, E52, R21

Suggested Citation

  • Battistini, Niccolò & Gareis, Johannes, 2024. "Housing investment and the user cost of housing in the euro area," Economic Bulletin Boxes, European Central Bank, vol. 3.
    • Handle: RePEc:ecb:ecbbox:2024:0003:4
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    File URL: https://www.ecb.europa.eu//press/economic-bulletin/focus/2024/html/ecb.ebbox202403_04~c293f1d1ae.en.html
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    More about this item

    Keywords

    housing investment; user cost of housing;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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