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Mortgage Debt Limits and Buy-to-Let Investors: A Structural Model of Housing with an Endogenous Rental Sector

Author

Listed:
  • Jurre Thiel

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Henrik Zaunbrecher

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

Since the financial crisis, home ownership rates have decreased across the world. Also in the Netherlands, the size of the rental sector has increased. Decreased access to mortgage debt explains part of this development. We show that tightened mortgage debt limits explain a fifth of the increase in rentals between 2013 and 2019. Mortgage debt limits constrain the amount a household can borrow to purchase a home. When a household cannot buy a house, it might rent instead. As a result, investors purchase homes to let and houses shift into the rental sector. Based on a new model of the interaction between the owner-occupied and rental sectors of the housing market, we show that this distortion can be sizable. Taxing rents or imposing a cap on the number of rentals can partially counteract the effects of mortgage debt limits on the number of rentals. However, such measures tend to also push households that prefer to rent into owner-occupation. Hence, they are counterproductive when taken too far.

Suggested Citation

  • Jurre Thiel & Henrik Zaunbrecher, 2023. "Mortgage Debt Limits and Buy-to-Let Investors: A Structural Model of Housing with an Endogenous Rental Sector," CPB Discussion Paper 449, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:449
    DOI: 10.34932/wfaj-zs98
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    References listed on IDEAS

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    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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