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Macroprudential policy in an agent-based model of the UK housing market

Author

Listed:
  • Baptista, Rafa

    (Oxford Martin School, University of Oxford)

  • Farmer, J. Doyne

    (Oxford Martin School, University of Oxford)

  • Hinterschweiger, Marc

    (Bank of England)

  • Low, Katie

    (Bank of England)

  • Tang, Daniel

    (Oxford Martin School, University of Oxford)

  • Uluc, Arzu

    (Bank of England)

Abstract

This paper develops an agent-based model of the UK housing market to study the impact of macroprudential policies on key housing market indicators. This approach enables us to tackle the heterogeneity in this market by modelling the individual behaviour and interactions of first-time buyers, home owners, buy-to-let investors, and renters from the bottom up, and observe the resulting aggregate dynamics in the property and credit markets. The model is calibrated using a large selection of micro-data, mostly from household surveys and housing market data sources. We perform a series of comparative statics exercises to investigate the impact of the size of the rental/buy-to-let sector and different types of buy-to-let investors on housing booms and busts. The results suggest that an increase in the size of the buy-to-let sector may amplify house price cycles and increase house price volatility. Furthermore, in order to illustrate the effects of macroprudential policies on several housing market indicators, we implement a loan-to-income portfolio limit. We find that this policy attenuates the house price cycle.

Suggested Citation

  • Baptista, Rafa & Farmer, J. Doyne & Hinterschweiger, Marc & Low, Katie & Tang, Daniel & Uluc, Arzu, 2016. "Macroprudential policy in an agent-based model of the UK housing market," Bank of England working papers 619, Bank of England.
    • Handle: RePEc:boe:boeewp:0619
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Agent-based mode; housing market; macroprudential policy; buy-to-let sector;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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