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Macroprudential policy and the role of institutional investors in housing markets

Manuel A. Muñoz and Frank Smets

No 137, ESRB Working Paper Series from European Systemic Risk Board

Abstract: Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment •rms leverage large-scale buy-to-rent real estate investments that enable them to set prices in rental markets. A significant fraction of this funding is being provided in the form of non-bank lending - which is not subject to regulatory LTV ratios - and REIFs are generally not constrained by leverage limits. We develop a quantitative DSGE model that incorporates the main features of the REIF industry and identify leakages of existing macroprudential policy: (i) already existing countercyclical LTV rules on residential mortgages trigger a credit reallocation towards the REIF sector that can amplify financial and business cycles; while (ii) "non-existent" countercyclical LTV rules on lending to REIFs are particularly effective in taming such cycles. Due to the different mechanisms through which they operate, both types of LTV rules complement each other and jointly yield larger welfare gains (for savers and borrowers) than in isolation. JEL Classification: E44, G23, G28

Keywords: leakages; leverage; loan-to-value ratios; real estate funds; rental housing (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-cba and nep-eec
Note: 58657
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Working Paper: Macroprudential policy and the role of institutional investors in housing markets (2020) Downloads
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