A Housing Portfolio Channel of QE Transmission

Abstract

We document a housing portfolio channel of quantitative easing (QE) transmission exploiting household variation in German data in a difference-in-differences setting around the time of QE adoption in the euro area in 2015. We find that QE encourages households with larger initial bond holdings to rebalance their portfolios more toward second homes. The rebalancing is especially pronounced among higher-income and church-affiliated households that have a stronger motive to purchase and rent out properties due to tax incentives. We also find that more informed households, with prior knowledge of the rental market or receiving financial advice from banks, and more financially literate are more likely to rebalance toward second homes. Finally, we also show that, in regions more exposed to this channel, house prices increase more than rents, and sale listings decrease more than rental ones, suggesting that the rental supply may increase in response to QE.

Keywords: Buy-to-let, Germany, Housing Returns, Housing Tax Regimes, House- hold Portfolio Rebalancing, Monetary Policy, Rental Yields, Quantitative Easing

JEL Classification: E3, E4, E5, G5, R3