Monetary Policy, Property Prices and Rents: Evidence from Local Housing Markets

Abstract

How do different monetary policy tools influence residential housing markets, and how do these effects vary between owner-occupied and rental segments? To answer this question, we assemble a new monthly regional dataset from 35 million real estate listings over the period 2007-2023 and exploit high-frequency monetary policy surprises for identification. Focusing on Germany-where half of households rent-we find that expansionary monetary policy significantly boosts property prices, with forward guidance and quantitative easing having more pronounced and persistent effects than conventional rate cuts. Rents also rise, albeit more modestly and less persistently. Housing demand-measured by daily contacts per listing-rises sharply, while the number of for-sale properties falls, tightening the owner-occupied market more than the rental market. Linking these findings to survey microdata, we show that renters become homeowners at higher rates, homeowners reduce home-to-home moves, and renters make more rent-to-rent transitions. The results suggest that accommodative monetary policy can widen price-to-rent ratios, fueling housing affordability pressures and potentially exacerbating the wealth gap between owners and renters.

Keywords: housing markets, monetary policy, rents, property prices, forward guidance, quantitative easing, household mobility JEL codes: E52

JEL Classification: E52, R21, R31