A recent study from researchers Martin Groiss and Nicolas Syrichas reveals how monetary policy influences housing markets, with expansionary measures driving up property prices and rents, widening the gap between homeowners and renters.

The study, titled Monetary Policy, Property Prices, and Rents: Evidence from Local Housing Markets, analyzes data from 35 million German real estate listings between 2007 and 2023. It examines the impacts of various monetary policy tools, including rate cuts, forward guidance, and quantitative easing, on the rental and owner-occupied segments of the housing market.

Key Findings

The research highlights that expansionary monetary policies, particularly forward guidance and quantitative easing, significantly increase property prices more persistently than traditional interest rate cuts. Rents also rise under such policies, but the increases are more modest and short-lived.

Demand for housing, measured by daily inquiries per listing, spikes sharply during periods of monetary easing. Simultaneously, the number of properties for sale declines, tightening the owner-occupied housing market more than the rental market.

The study also uncovers a notable shift in household mobility patterns:

• Renters transition to homeownership at higher rates during monetary easing.
• Homeowners reduce the frequency of home-to-home moves.
• Renters move between rental properties more frequently, indicating tighter conditions in the rental market.

Policy Implications

The findings suggest that accommodative monetary policy can widen price-to-rent ratios, exacerbating affordability challenges for renters while increasing wealth disparities between property owners and tenants. With Germany’s unique housing landscape, where approximately 50% of households rent, these outcomes have significant implications for economic inequality and social mobility.

The study contributes to ongoing debates about the unintended consequences of monetary policy on housing affordability. While central banks often rely on monetary easing to stimulate economic growth, the research shows that such measures may disproportionately benefit property owners at the expense of renters, further entrenching wealth inequality.

“Monetary policy decisions have profound ripple effects on housing markets,” the authors write. “Our findings highlight the need for complementary policies to mitigate affordability pressures and promote equitable access to housing.”

As central banks worldwide navigate an era of high inflation and interest rate volatility, policymakers must grapple with the dual mandate of economic stability and housing affordability. Groiss and Syrichas’ study underscores the need for targeted interventions—such as land value taxes or stronger renter protections—to address the housing affordability crisis exacerbated by monetary policy.

For renters and aspiring homeowners alike, the research delivers a stark warning: without structural reforms, expansionary monetary policy could leave many households struggling to keep up with rising costs in both the rental and ownership markets.