Erlend Bø, SSB: Buy to let: Endogenous rents and investment buyers in a housing search model

Staff lunch seminar. Erlend Bø is a PhD-student at Statistics Norway. He will present the paper "Buy to let: Endogenous rents and investment buyers in a housing search model".

Erlend Eide Bø.

Abstract:

"Search and matching models have become a popular way to introduce market frictions in housing models. The models try to explain magnitudes of housing market volatility and persistence that are hard to reconcile with fluctuations in fundamentals. But even standard search and matching models of the housing market often do not reproduce the price volatility found in the data. I suggest adding the possibility of buy-to-let, and let rents be determined endogenously.

As shown in empirical evidence, rents and the share of second home buyers are positively correlated with housing prices. I make a structural search model that allows for housing owners to buy second homes to rent out. My model introduces two mechanisms that affect volatility compared to a model without landlords and with constant rents. First, the correlation of rents and housing prices makes it attractive for non-owners to buy in "hot" markets, to avoid paying high rents. Additionally, the increased incentives of owners to become landlords in periods of high rents increase the number of buyers and amplify the effect of high rents on housing prices and transaction volumes."

Published Apr. 1, 2016 11:24 AM - Last modified Sep. 28, 2016 9:25 AM