Rental market structure and housing dynamics: An interacted panel VAR investigation

Abstract

This article uses the interacted panel VAR method to analyse how institutional factors related to the structure of the housing market explain cross-country heterogeneity in responses to macroeconomic shocks. While the previous literature focused on the stabilizing role of the mortgage market, we argue that housing tenure structure also plays an important role. In the baseline, we use data for nine OECD members to investigate how the size and regulations of the rental market affect the response of the housing market to interest rate shocks. As a reference, we also conduct a similar analysis with the mortgage market structure as the institutional factor. We find that both the rental market size and maximum loan-to-value ratios are important in explaining heterogeneity of housing market responses to macroeconomic shocks.