House Price Determinants in the European Union: The Role of Macroprudential Policy

The study examines key factors influencing residential real estate markets across EU countries using fixed effects panel estimation on EU countries from 2011Q1 to 2024Q3. Housing markets vulnerabilities were one of the main factors behind the Great Financial Crisis, urging policy makers to design dedicated macroprudential instruments in order to decrease RRE risks. Current literature highlights GDP growth, unemployment, interest rates, and construction output as main potential drivers of house price growth. The research methodology involves establishing the determinants of house prices and investigating the direct and indirect effects of macroprudential policies on housing markets, particularly through the credit channel. Key findings confirm the results in the literature regarding house price drivers and reveal that capital buffers have a minor impact on house prices and mortgage credit, while borrower-based instruments significantly affect credit markets but not directly housing markets. The study contributes to the field by providing empirical evidence on the nuanced effects of macroprudential policies, offering insights for policymakers aiming to stabilize housing markets.