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House prices and rents: a reappraisal

Author

Listed:
  • Bertrand Achou

    (University of Groningen [Groningen])

  • Hippolyte D’albis

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris)

  • Eleni Iliopulos

    (Université Paris-Saclay, CEPREMAP - Centre pour la recherche économique et ses applications - ECO ENS-PSL - Département d'économie de l'ENS-PSL - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres)

Abstract

In this work, we introduce rental markets in a general equilibrium model with borrowing constraints and infinitely lived agents. We estimate our model using standard Bayesian methods and match US data on recent decades. We highlight a crucial relationship that strongly links interest rates, house prices, and rents. It represents agents' arbitrage when choosing their degree of participation in the housing market (i.e. their real estate holdings). This framework is particularly well suited for explaining how policy-induced changes in households' preferences have driven house prices up while pushing rent-price ratios down in the aftermath of the Covid-19 outbreak. It also allows us to parsimoniously track the unequal impact of these changes on agents' decisions and welfare, which crucially depends on whether they are owners or renters.

Suggested Citation

  • Bertrand Achou & Hippolyte D’albis & Eleni Iliopulos, 2024. "House prices and rents: a reappraisal," PSE-Ecole d'économie de Paris (Postprint) halshs-05168974, HAL.
    • Handle: RePEc:hal:pseptp:halshs-05168974
    DOI: 10.1017/S136510052300055X
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