Buy or Rent: Measuring the Distributional Effects of Monetary Policy on the Housing Market

Abstract: How do the prices of properties listed for sale or rent respond to changes in monetary policy? To answer this question, we use a large online dataset of 23 million listings across 386 regions in Germany from 2007 to 2023 and high-frequency monetary policy surprises in the Euro Area. We investigate the dynamic causal effect of monetary policy changes in an IV panel local projection framework. Expansionary monetary policy has contributed significantly to the increase in house prices, with the effects being more pronounced for house sales than for rents. We then examine the differences between conventional and unconventional monetary policy tools and find a temporary response of house prices to policy rate cuts and a more pronounced effect of forward guidance and quantitative easing. Finally, we examine regional differences in housing market responses to monetary policy and show the role played by regional population growth, regulations and the city size.