The price‐to‐rent ratio: A macroprudential application

Sonia Gilbukh, Andrew Haughwout, Rebecca J. Landau and Joseph Tracy

Real Estate Economics, 2023, vol. 51, issue 2, 503-532

Abstract: We examine the potential for the price‐to‐rent ratio to be used as a macroprudential tool. In addition to using standardized appraisal methods, appraisers could estimate the current market rent for a property. The resulting price‐to‐rent ratio would provide a useful signal for speculative pressures. We show this by estimating price‐to‐rent ratios using the American Housing Survey. The distribution of price‐to‐rent ratios shifted up dramatically during the housing boom with the 75th and 95th percentile reaching a historic peak in 2006 at 22 and 44, respectively. We propose a lending policy that incorporates the price‐to‐rent ratio to generate countercyclical loan‐to‐value ratios.

Date: 2023
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