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The price‐to‐rent ratio: A macroprudential application

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  • Sonia Gilbukh
  • Andrew Haughwout
  • Rebecca J. Landau
  • Joseph Tracy

Abstract

We examine the potential for the price‐to‐rent ratio to be used as a macroprudential tool. In addition to using standardized appraisal methods, appraisers could estimate the current market rent for a property. The resulting price‐to‐rent ratio would provide a useful signal for speculative pressures. We show this by estimating price‐to‐rent ratios using the American Housing Survey. The distribution of price‐to‐rent ratios shifted up dramatically during the housing boom with the 75th and 95th percentile reaching a historic peak in 2006 at 22 and 44, respectively. We propose a lending policy that incorporates the price‐to‐rent ratio to generate countercyclical loan‐to‐value ratios.

Suggested Citation

  • Sonia Gilbukh & Andrew Haughwout & Rebecca J. Landau & Joseph Tracy, 2023. "The price‐to‐rent ratio: A macroprudential application," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(2), pages 503-532, March.
    • Handle: RePEc:bla:reesec:v:51:y:2023:i:2:p:503-532
    DOI: 10.1111/1540-6229.12431
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