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Rented vs. owner-occupied housing and monetary policy

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  • Margarita Rubio

Abstract

The aim of this paper is to show how housing tenure (rented vs. owner-occupied) affects monetary policy. In order to do that, I propose a dynamic stochastic general equilibrium model with housing, both owned and rented. First, I analyze how, in the model, preference parameters, fiscal incentives and institutional factors determine the rental market share and the residential debt-to-GDP ratio. Then, within this framework, I study how the transmission and optimality of monetary policy differ depending on these factors. From a positive perspective, impulse responses illustrate differences in the monetary transmission mechanism. In normative terms, results show that when the relative size of the rental market is larger, monetary policy is more stabilizing. An optimal monetary policy analysis also suggests that in this case, monetary policy should respond more aggressively to inflation and disregard output, since the financial accelerator effects are weaker.

Suggested Citation

  • Margarita Rubio, 2014. "Rented vs. owner-occupied housing and monetary policy," NBP Working Papers 190, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:190
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    References listed on IDEAS

    as
    1. Eva Ortega & Margarita Rubio & Carlos Thomas, 2011. "House purchase versus rental in Spain," Working Papers 1108, Banco de España.
    2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    3. David Domeij & Martin Floden, 2006. "The Labor-Supply Elasticity and Borrowing Constraints: Why Estimates are Biased," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 242-262, April.
    4. Mora-Sanguinetti, Juan S. & Rubio, Margarita, 2014. "Recent reforms in Spanish housing markets: An evaluation using a DSGE model," Economic Modelling, Elsevier, vol. 44(S1), pages 42-49.
    5. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
    6. Matt Chambers & Carlos Garriga & Don Schlagenhauf, 2009. "The Loan Structure and Housing Tenure Decisions in an Equilibrium Model of Mortgage Choice," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 444-468, July.
    7. Jeske, Karsten & Liu, Zheng, 2013. "Should The Central Bank Be Concerned About Housing Prices?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(1), pages 29-53, January.
    8. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Solving dynamic general equilibrium models using a second-order approximation to the policy function," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 755-775, January.
    9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    10. Tommaso Monacelli, 2008. "Optimal Monetary Policy with Collateralized Household Debt and Borrowing Constraints," NBER Chapters, in: Asset Prices and Monetary Policy, pages 103-146, National Bureau of Economic Research, Inc.
    11. Pablo Casas-Arce & Albert Saiz, 2010. "Owning versus Renting: Do Courts Matter?," Journal of Law and Economics, University of Chicago Press, vol. 53(1), pages 137-165, February.
    12. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
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    Cited by:

    1. Andrea Camilli, 2020. "Labor market institutions and homeownership," Working Papers 440, University of Milano-Bicocca, Department of Economics, revised May 2020.
    2. Mariano Bosch & M. Carnero & Lídia Farré, 2015. "Rental housing discrimination and the persistence of ethnic enclaves," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 6(2), pages 129-152, June.
    3. Stähler, Nikolai, 2019. "Who benefits from using property taxes to finance a labor tax wedge reduction?," Journal of Housing Economics, Elsevier, vol. 46(C).
    4. Javier Ferri & Francisca Herranz-Baez, 2023. "Building on fiscal policy: government consumption and the residential sector. When helping hurts," Working Papers 2023-01, FEDEA.

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    More about this item

    Keywords

    Housing market; rental; owner-occupied housing; monetary policy;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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