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House prices and rents: a reappraisal

Author

Listed:
  • Achou, Bertrand
  • d’Albis, Hippolyte
  • Iliopulos, Eleni

Abstract

In this work, we introduce rental markets in a general equilibrium model with borrowing constraints and infinitely lived agents. We estimate our model using standard Bayesian methods and match US data on recent decades. We highlight a crucial relationship that strongly links interest rates, house prices, and rents. It represents agents’ arbitrage when choosing their degree of participation in the housing market (i.e. their real estate holdings). This framework is particularly well suited for explaining how policy-induced changes in households’ preferences have driven house prices up while pushing rent-price ratios down in the aftermath of the Covid-19 outbreak. It also allows us to parsimoniously track the unequal impact of these changes on agents’ decisions and welfare, which crucially depends on whether they are owners or renters.

Suggested Citation

  • Achou, Bertrand & d’Albis, Hippolyte & Iliopulos, Eleni, 2024. "House prices and rents: a reappraisal," Macroeconomic Dynamics, Cambridge University Press, vol. 28(7), pages 1512-1538, October.
    • Handle: RePEc:cup:macdyn:v:28:y:2024:i:7:p:1512-1538_4
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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