Macroprudential Policy and the Role of Institutional Investors in Housing Markets

Since the onset of Global Financial Crisis, presence institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other investment firms leverage large-scale buy-to-rent investments real assets that enable them to set prices rental markets. A significant fraction this funding is being provided form non-bank lending (i.e., not subject regulatory LTV limits). I develop a quantitative two-sector DSGE model incorporates main features fund industry current context study effectiveness dynamic ratios as macroprudential tool. Despite comparatively low total property debt held by REIFs, optimized rules limiting borrowing capacity such are more effective smoothing prices, credit business cycles than those affecting (indebted) households – limit. This finding remarkably robust across alternative calibrations (of key parameters) specifications model. The underlying reason behind an important unexpectedly relates strong interconnectedness REIFs with various sectors economy. JEL Classification: E44, G23, G28