The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model

Marco Bardoscia, Adrian Carro, Marc Hinterschweiger, Mauro Napoletano, Lilit Popoyan, Andrea Roventini and Arzu Uluc

Journal of Economic Behavior & Organization, 2025, vol. 229, issue C

Abstract: We develop a macroeconomic agent-based model to study the joint impact of borrower- and lender-based prudential policies on the housing and credit markets and the economy more widely. We perform three experiments: (i) an increase of total capital requirements; (ii) an introduction of a loan-to-income (LTI) cap on mortgages to owner–occupiers; and (iii) a joint introduction of both experiments at the same time. Our results suggest that tightening capital requirements leads to a sharp decrease in commercial and mortgage lending, and housing transactions. When the LTI cap is in place, house prices fall sharply relative to income, and the homeownership rate decreases. When both policy instruments are combined, we find that housing transactions and prices drop. Both policies have a positive impact on real GDP and unemployment, while there is no material impact on inflation and the real interest rate.

Keywords: Prudential policies; Housing market; Macroeconomy; Agent-based models (search for similar items in EconPapers)
JEL-codes: C63 D1 D31 E58 G21 G28 R2 R21 R31 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268124004530
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulation on the UK housing market and economy: Insights from an agent-based model (2025)
Working Paper: The impact of prudential regulations on the UK housing market and economy: insights from an agent-based model (2024)
Working Paper: The impact of prudential regulations on the UK housing market and economy: insights from an agent-based model (2024)
Working Paper: The impact of prudential regulations on the UK housing market and economy: Insights from an agent-based model (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:229:y:2025:i:c:s0167268124004530

DOI: 10.1016/j.jebo.2024.106839

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().