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Andrew Hannon
- 28 May 2025
- THE ECB BLOGDespite recent ECB rate cuts, the average interest rate on mortgages is expected to increase further. This is because of lagged effects from the latest hiking cycle. The ECB blog shows that the resulting drag on consumption could last at least until 2030.Details
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 16 January 2025
- RESEARCH BULLETIN - No. 127Details
- Abstract
- Housing affordability is at the centre of the political debate in many euro area countries. With steadily increasing rents and house prices still high relative to historical standards, many young households, particularly in large cities, are devoting an ever larger share of their income to housing expenses, and are finding it increasingly hard to access their desired size and quality of housing. At the same time, in the aftermath of the global financial crisis, many authorities tightened credit conditions by introducing limits to mortgage debt for banks or for borrowers themselves (borrower-based measures). These interventions were successful in improving financial stability, which was their key objective. In this article we point to an overlooked potential downside of these policies and other restrictive shocks to credit: limiting access to mortgage credit and, therefore, to homeownership, can spill over into the rental market, pushing up rents and having a negative welfare impact on some households – particularly the young and those on low incomes.
- JEL Code
- D15 : Microeconomics→Household Behavior and Family Economics
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G51 : Financial Economics
- 28 August 2024
- WORKING PAPER SERIES - No. 2977Details
- Abstract
- We build a model of the aggregate housing and rental markets in which houseprices and rents are determined endogenously. Households can choose their housingtenure status (renters, homeowners, or landlords) and the size of their homes dependingon their age, income and wealth. We use our model to study the impact of changesin credit conditions on house prices, rents and household welfare. We analyse theintroduction of policies that limited loan-to-value (LTV) and loan-to-income (LTI) ratiosof newly originated mortgages in Ireland in 2015 and find that, consistent with empiricalevidence, they mitigate house price growth but increase rents. Homeownership ratesdrop, and young and middle-income households are negatively affected by the reform.An unexpected permanent rise in real interest rates has similar effects – by makingmortgages more expensive and alternative investments more attractive for landlords, itincreases rents relative to house prices.
- JEL Code
- D15 : Microeconomics→Household Behavior and Family Economics
E21 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Consumption, Saving, Wealth
E30 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→General
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G51 : Financial Economics