By Michal Rubaszek and Margarita Rubio
http://d.repec.org/n?u=RePEc:not:notcfc:17/06&r=dge
The size of the rental housing market in most countries around the globe is low. In this article we claim that this may be detrimental for macroeconomic stability. Toward this aim we, determine the reasons behind rental market underdevelopment by conducting an original survey among a representative group of 1005 Poles, a country that is characterized by high homeownership ratio. We find that households’ preferences are strongly influenced by economic and psychological factors. Next, we propose a DSGE model in which households satisfy housing needs both by owning and renting. We use it to show that reforms enhancing the rental housing market contribute to macroeconomic stability. This micro-macro approach allows us to dig into the causes of rental market underdevelopment and design appropriate policy recommendations.
I have been puzzled that in economies with more risk, people were owning their homes rather than renting them. The reason of my puzzlement was that owning makes you less mobile, as you are tied to an illiquid asset whose value correlates strongly with local economic conditions (which may be the reason to move away). This paper seems to resolve this through reverse causation: where rental rates are higher, economies are more stable as a result. To make this happen in general equilibrium, though, the choice of residential status has then to be at least partly exogenous of economic considerations.
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In the paper we do not touch upon residental mobility, but just a reaction to financial shocks. However, I do agree that residential mobility is another factor that makes the economy more resilient to economic shocks. Tenants are definitelly more mobile, as evidenced by in the OECD paper “To Move or not to Move: What Drives Residential Mobility Rates in the OECD”. However, even if there are clear arguments in favor of developing the rental market to limit cyclical fluctuations, the question about welfare effects is not clear. If there is strong utility gain from homeownership, it might be the case that on avarage people might be more happy in living in their own appartments, even though their economic situation is less stable…