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Mortgage Rates and the Price-to-Rent Ratio Across Space (JMP)
This paper develops a parsimonious housing market model that conceptualizes residential real estate as both a non-tradable consumption good and an investment asset. The framework embeds households’ joint location–tenure choices, which shape local price-to-rent ratios. I test its predictions using a granular dataset of Italian housing prices and rents and a shift-share instrumental variable design exploiting heterogeneity in mortgage uptake across age groups. The results show that mortgage rate shocks induce spatially asymmetric responses in prices, rents, price-to-rent ratios, population, and tenure choices, consistent with the model’s implications. A structural estimation reproduces these heterogeneous effects and indicates that a positive mortgage rate shock alleviates spatial welfare inequality and narrows the divide between renters and homeowners.
JEL codes: E22, G12, G21, R21, R23, R31
Presented a preliminary version at the 13th European Meeting of the Urban Economics Association (titled: "Geography in a Partially Segmented Housing Market").
To be presented at the 1st Zurich-Oxford Doctoral Symposium on Real Estate Markets.
On the left I plot the estimated local labor market price elasticities with respect to the local mortgage interest rates on the map of Italy. On the right I plot the estimated local labor market rent elasticities with respect to the local mortgage interest rates. If the estimated elasticity is positive I plot the results in scales of green, while if the estimated elasticity is negative I plot the results in scales of red. It is possible to observe that the local responses of both prices and rents with respect to the local mortgage interest rate vary both in magnitude and direction.
Property Taxation and Real Estate Price Dispersion.
I test the claim that property taxes reduce the price dispersion across properties of different quality thus reducing wealth inequality. I exploit the removal of the Italian property tax on main residences and its design to identify the effect of such tax on property prices. The results are consistent with the previous claims but heterogeneous in magnitude across different property markets. Additionally, I design a monocentric city model to connect the real estate asset literature with the urban economics one, and I find that the former has been ignoring two channels for the property tax to affect prices: the ability of households to switch between properties of different quality and its effect on the local consumption good bundle price.
JEL codes: G12, H24, R21, R31, R38
The picture represent the map used by the Italian real estate property evaluation in the context of Milan. Each area is considered by the 1993 law on real estate property taxation for differentiating the local evaluations. I exploit these differences in order to estimate the effect of the Italian property taxation on different types of residential properties.
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