Macroprudential Policy in an Agent-Based Model of the UK Housing Market

50 Pages Posted: 11 Oct 2016

See all articles by Rafa Baptista

Rafa Baptista

University of Oxford

J. Doyne Farmer

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School; Santa Fe Institute

Marc Hinterschweiger

Bank of England

Katie Low

Bank of England

Daniel Tang

University of Oxford

Arzu Uluc

Bank of England

Date Written: October 07, 2016

Abstract

This paper develops an agent-based model of the UK housing market to study the impact of macroprudential policies on key housing market indicators. This approach enables us to tackle the heterogeneity in this market by modelling the individual behaviour and interactions of first-time buyers, home owners, buy-to-let investors, and renters from the bottom up, and observe the resulting aggregate dynamics in the property and credit markets. The model is calibrated using a large selection of micro-data, mostly from household surveys and housing market data sources. We perform a series of comparative statics exercises to investigate the impact of the size of the rental/buy-to-let sector and different types of buy-to-let investors on housing booms and busts. The results suggest that an increase in the size of the buy-to-let sector may amplify house price cycles and increase house price volatility.Furthermore, in order to illustrate the effects of macroprudential policies on several housing market indicators, we implement a loan-to-income portfolio limit. We find that this policy attenuates the house price cycle.

Keywords: Agent-based model, housing market, macroprudential policy, buy-to-let sector

JEL Classification: D1, D31, E58, R2, R21, R31

Suggested Citation

Baptista, Rafa and Farmer, J. Doyne and Hinterschweiger, Marc and Low, Katie and Tang, Daniel and Uluc, Arzu, Macroprudential Policy in an Agent-Based Model of the UK Housing Market (October 07, 2016). Bank of England Working Paper No. 619. Available at SSRN: https://ssrn.com/abstract=2850414 or http://dx.doi.org/10.2139/ssrn.2850414

Rafa Baptista (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

J. Doyne Farmer

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

HOME PAGE: http://www.inet.ox.ac.uk/people/view/4

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States
505-984-8800 (Phone)
505-982-0565 (Fax)

HOME PAGE: http://www.santafe.edu/~jdf/

Marc Hinterschweiger

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Katie Low

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Daniel Tang

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Arzu Uluc

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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