House Purchase Versus Rental in Spain

Abstract

One of the most salient feature of the Spanish housing market, compared to other European economies, is its relatively low rental share. This may be partly attributed to the existence of fiscal distortions in Spain favoring ownership. In this paper, we simulate the potential efects of different policy measures aimed at homogenizing the fiscal treatment of ownership and renting and improving the efficiency of the rental market. We do so in the context of a DSGE model featuring a market for owner-occupied and rented housing, as well as collateral constraints in loan markets. We find that eliminating the existing subsidy to house purchases, introducing a comparable subsidy to rental payments or increasing the efficiency in the production of housing rental services raise the rental share by a similar amount. However, their implications in terms of the construction sector differ.

Keywords: Rental market share, subsidy to house purchases, subsidy to rents, rental market efficiency

JEL Classification: E21, E3, E51, E6