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Monetary Policy and the Homeownership Rate

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  • James Graham
  • Avish Sharma

Abstract

How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting effects on ownership due to rising interest rates, falling in-comes, and lower house prices. To investigate, we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage ï¬ nance, and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following a contractionary shock, homeownership initially falls due to rising mortgage rates, but rises over the medium term given falling house prices. We also show that differences in mortgage credit conditions, mortgage flexibility, and household expectations formation can amplify homeownership dynamics following a shock.

Suggested Citation

  • James Graham & Avish Sharma, 2024. "Monetary Policy and the Homeownership Rate," CAMA Working Papers 2024-43, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2024-43
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    References listed on IDEAS

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    1. Gianni La Cava & Calvin He, 2021. "The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(3), pages 387-397, September.
    2. Luke Hartigan & James Morley, 2020. "A Factor Model Analysis of the Australian Economy and the Effects of Inflation Targeting," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 271-293, September.
    3. Daniel L. Greenwald & Adam Guren, 2025. "Do Credit Conditions Move House Prices?," American Economic Review, American Economic Association, vol. 115(10), pages 3559-3596, October.
    4. Trent Saunders & Peter Tulip, 2020. "A Model of the Australian Housing Market," The Economic Record, The Economic Society of Australia, vol. 96(S1), pages 1-25, June.
    5. Carlos Garriga & Aaron Hedlund, 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession," American Economic Review, American Economic Association, vol. 110(6), pages 1603-1634, June.
    6. Daniel L. Greenwald & Adam Guren, 2025. "Do Credit Conditions Move House Prices?," American Economic Review, American Economic Association, vol. 115(10), pages 3559-3596, October.
    7. James Graham, 2024. "A Structural Model of Mortgage Offset Accounts in the Australian Housing Market," Working Papers 2024-09, University of Sydney, School of Economics.
    8. Christopher Busch & David Domeij & Fatih Guvenen & Rocio Madera, 2022. "Skewed Idiosyncratic Income Risk over the Business Cycle: Sources and Insurance," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 207-242, April.
    9. Benjamin Beckers, 2020. "Credit Spreads, Monetary Policy and the Price Puzzle," RBA Research Discussion Papers rdp2020-01, Reserve Bank of Australia.
    10. Mardi Dungey & Adrian Pagan, 2000. "A Structural VAR Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 321-342, December.
    11. repec:bla:ausecr:v:40:y:2007:i:3:p:225-238 is not listed on IDEAS
    12. Ong, Rachel & Graham, James & Cigdem, Melek & Phelps, Christopher & Whelan, Stephen, 2023. "Financing first home ownership: modelling policy impacts at market and individual levels," SocArXiv p59te, Center for Open Science.
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    Cited by:

    1. James Graham, 2024. "A Structural Model of Mortgage Offset Accounts in the Australian Housing Market," Working Papers 2024-09, University of Sydney, School of Economics.

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    More about this item

    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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