The effect of macroprudential policy tools on the rental and owner-occupied housing market substitution

This article examines whether the tightening of macroprudential policy induces a “substitution effect” between owner-occupied and rental housing markets, evidenced by falling housing sales price growth and rising rental price growth. Using a large sample of 39 countries and two different modeling approaches, we produce impulse response functions (IRFs) to show the response of the dependent variables to changes in three groups of macroprudential policy tools: borrower-, capital- and liquidity-based tools. The baseline models use the local projections approach and compare estimates based on data from 2000 Q1 to 2022 Q4 and from 2012 Q1 to 2022 Q4. These baseline estimates are compared to the IRFs estimated by the panel Vector Autoregression model with fixed effects. The results confirm that macroprudential policy tools, especially borrower- and capital-based, cause a substitution between owner-occupied housing and rental housing markets and that constrained credit supply can cause an excess demand in rental housing markets, increasing rental price growth. This effect is further investigated in countries with homeownership rates higher and lower than 70 %, and in countries with and without rental price control. In countries with homeownership rates lower than 70 %, the tightening of borrower- and capital-based tools decreases housing sales price growth more and increases rental price growth less than in countries with homeownership rates higher than 70 %. Lastly, the substitution effect appears to be slightly stronger in countries without rental price control than in those with it.