Centre for Finance, Credit and Macroeconomics (CFCM)

CFCM 17/06: Does rental housing market stabilize the economy? A micro and macro perspective.

Does rental housing market stabilize the economy?


A low share of the private rental market observed in most countries around the globe might be considered as a serious structural weakness, and raises two important questions. The first one relates to the reasons behind this rental market underdevelopment. The authors conduct an original survey among a representative group of 1005 Poles, which allows them to better understand their attitudes toward various housing tenure choices. This is an important contribution because they take as an example a paradigmatic country that is characterized by a low rental market share. The survey provides relevant micro evidence on the reasons accounting for housing tenure choice and constitutes a crucial piece of information for policy makers. Rubaszek and Rubio find that the preferences of the respondents are strongly tilted toward owning, mainly because they perceive ownership as the only way to provide a safe place for the family and to really "feel at home". Moreover, renting is perceived to be a more expensive form of satisfying housing needs. Consequently, the rental market is currently treated as a short-term, temporary solution, and not as a vital alternative to ownership for a longer stay.

The second relates to the macroeconomic implications of a low rental market share. The authors develop a Dynamic Stochastic General Equilibrium (DSGE) model with a rental market that can be used to assess the role of the housing tenure structure for macroeconomic stability. Rubaszek and Rubio calibrate the model to the Polish data so that the model economy is characterised by very low rental market share. Building on the results of the survey, which allow 5the authors to identify inefficiencies in the functioning of the rental market, they propose a series of reforms and conduct contractual simulations. In particular they quantify the effects of (i) improving tenant protection legislation, (ii) equalizing fiscal incentives for different types of housing tenures, and (iii) improving the standard of rental services. All three reforms lead to an increase in the share of the rental market, which in turn contribute to macroeconomic stability. In particular, they show that rental market development diminishes the impact of shocks to the financial sector on the key macroeconomic variables.

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Michal Rubaszek and Margarita Rubio

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Posted on Tuesday 29th August 2017

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