The price‐to‐rent ratio: A macroprudential application

Gilbukh, Sonia; Haughwout, Andrew F.; Landau, Rebecca J; Tracy, Joseph

doi:10.1111/1540-6229.12431

Cited by 4 publications

(4 citation statements)

References 42 publications

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“…Our theory, however, also has implications for cross‐city variation in the price‐rent ratio of the average‐quality house. This concept is often viewed by housing economists as a potential gauge of the role of financial or speculative factors in driving relative activity in the owned housing market (e.g., Gilbukh et al., 2017). Empirically, however, it is challenging to estimate the price to rent ratio of equivalent housing units, precisely because the composition of owned and rented housing is so different.…”

Section: Alternative Specifications and Other Implicationsmentioning

confidence: 99%

Heterogeneity, Frictional Assignment, and Home‐ownership

Head

Lloyd‐Ellis

Stacey

2023

Int Economic Review

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A model of the distribution of home-ownership in a city is developed. Heterogeneous houses are built by a competitive development industry and either rented competitively or sold through directed search to households which differ in wealth and sort over housing types. In the absence of both financial restrictions and constraints on house characteristics, higher income households are more likely to own and lower quality housing is more likely to be rented. Calibrated to match average features of housing markets within U.S. cities, the model is qualitatively consistent with U.S. data on the relationships between observed differences in median income, inequality, median household age, and construction/land costs across cities and both home-ownership and the average cost of owning vs. renting. Policies designed to improve housing affordability raise both housing quality and ownership for lower income households while lowering housing quality (but not ownership) for high income ones.

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Section: Alternative Specifications and Other Implicationsmentioning

confidence: 99%

Heterogeneity, Frictional Assignment, and Home‐ownership

Head

Lloyd‐Ellis

Stacey

2023

Int Economic Review

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“…The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/1463-578X.htm market fundamentals. The most recent boom-bust cycle, the Global Financial Crisis (GFC) of 2007/8, witnessed severe house price inflation primarily driven by the expansion of monetary supply (credit) which also accelerated housing supply (Himmelberg et al, 2005;Gilbukh et al, 2017). The housing market bust, and downward price correction witnessed a house price reversion which adversely impacted the demand for housing and housing market equilibrium.…”

Section: Introductionmentioning

confidence: 99%

“…The most recent boom–bust cycle, the Global Financial Crisis (GFC) of 2007/8, witnessed severe house price inflation primarily driven by the expansion of monetary supply (credit) which also accelerated housing supply (Himmelberg et al. , 2005; Gilbukh et al. , 2017).…”

Section: Introductionmentioning

confidence: 99%

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Causal relationships between the price-to-rent ratio and macroeconomic factors: a UK perspective

McCord

Davis

et al. 2022

JPIF

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PurposeHouse price-to-rent (P-t-R) ratios are among the most widely used measures of housing market conditions. Given the theoretical and apparent bidirectional, causal relationships and imbalances between the housing market, broader economy and financial market determinants, it is important to understand the relationship between macro- and micro-economic characteristics in relation to the P-t-R ratio to enhance the understanding of housing market dynamics. This paper studies the joint dynamics and persistence of house prices and rents and examines the temporal interactions of the P-t-R ratio and economic and financial determinants.Design/methodology/approachThe authors examine the lead–lag relationships between the P-t-R ratios and a spectrum of macroeconomic variables using cointegration and causality methods, initially at the aggregate position and also across housing types within the Northern Ireland housing market to establish whether there are subtle differences in how various housing segments react to changes in economic activity and market fundamentals.FindingsThe findings reveal price switching dynamics and some very distinct long- and short-run relationships between macroeconomic and financial indicators and the P-t-R ratios across the various housing segments. The results exhibit monetary supply, foreign exchange markets and the stock market to be important drivers of the P-t-R ratio, with P-t-R movements seemingly tied, or are in tandem, with the overall economy, particularly with the construction sector.Practical implicationsThe study shows that the P-t-R ratio can be used as an early measure for establishing the effects of macroprudential policy changes and how these may manifest across housing tiers and quality, which can further act as a signal for preventing or at least mitigating future irrational price cyclicity. These insights serve to inform housing and economic policy and macroprudential policy design, principally within lending policy and the effect of regulatory interventions and further enhance the understanding of the P-t-R ratio on housing market structure and dynamics.Originality/valueThis study is the first in the housing literature that examines the causal relationships between the P-t-R ratio and macroeconomic activity at the sub-market level. It investigates whether and how money supply, inflation, foreign exchange markets, general economic productivity and other important macroeconomic factors interact with the pricing of different property types over time.

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Micro Evidence Relating to House Rents, Prices and Investor Size from a Matched Dataset

Rutherford,

Yavas

et al. 2023

J Real Estate Finan Econ

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The price‐to‐rent ratio: A macroprudential application

Cited by 4 publications

References 42 publications

Heterogeneity, Frictional Assignment, and Home‐ownership

Heterogeneity, Frictional Assignment, and Home‐ownership

Causal relationships between the price-to-rent ratio and macroeconomic factors: a UK perspective

Micro Evidence Relating to House Rents, Prices and Investor Size from a Matched Dataset

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