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Discussion Papers no. 896

Buy to let: Investment buyers in a housing search model

This paper explores and explains how buy-to-let investors affect housing price dynamics

In this paper, I explore and explain how buy-to-let investors affect housing price dynamics. The impact of buy-to-let investors on the housing market is much discussed by policy makers, but previously not considered in the literature. I develop a structural search model that allows housing owners to buy second houses to let out, and let rents be determined endogenously. To motivate the model, I present empirical evidence from the city of Oslo showing that a significant share of buyers are buy-to-let investors, and both rents and the share of second house buyers are positively correlated with housing prices. The model introduces two mechanisms that affect volatility compared to a model with no landlords and constant rents. First, the endogenous correlation of rents and housing prices makes it attractive for non-owners to buy in “hot” markets, to avoid paying high rents. Second, the increased incentives to become landlords in high rent periods further increase the number of buyers and amplify the effect of high rents on housing prices and transaction volumes. The model is calibrated using data from Oslo, and is able to match quantitatively the high investor share and housing price volatility of a housing boom.

About the publication

Title

Buy to let: Investment buyers in a housing search model

Author

Erlend Eide Bø

Series and number

Discussion Papers no. 896

Publisher

Statistisk sentralbyrå

Topic

Discussion Papers

ISSN

1892-753X

Number of pages

49

About Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

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