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

Author

Listed:
  • Juan Castellanos

    (Bank of England)

  • Andrew Hannon

    (National Bank of Belgium)

  • Gonzalo Paz-Pardo

    (European Central Bank)

Abstract

We build a model of the housing and rental markets where house prices and rents are determined endogenously by the interaction of heterogeneous renters, homeowners and landlords. Using Ireland as a case study, we analyse the impact of changes in credit conditions from: (i) new policies introduced in 2015 that limit loan-to-value and loan-to-income ratios of newly originated mortgages and (ii) real interest rate shocks. We find that contractionary credit shocks reduce house prices on impact but increase rents over both the short and long run. Our results contribute to the broader assessment of macroprudential policy tools by uncovering their effects on rental-market margins, but do not provide a fully integrated assessment of the costs and benefits of these policies, as we do not model the cyclical build-up of financial-sector risks.

Suggested Citation

  • Juan Castellanos & Andrew Hannon & Gonzalo Paz-Pardo, 2026. "The aggregate and distributional implications of credit shocks on housing and rental markets," Bank of England Staff Working Paper series 1213, Bank of England.
    • Handle: RePEc:boe:boeewp:023920
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2026/the-aggregate-and-distributional-implications-of-credit-shocks-on-housing-and-rental-markets.pdf
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    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

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