DP14632 The effect of self-financed property buyers on local house prices

Author(s):	Andreas M Fischer, Lucca Zachmann
Publication Date:	April 2020
Date Revised:	June 2020
Keyword(s):	macro-prudential regulation, self-financed investors, zero lower bound
JEL(s):	E59, G20, G21, G28
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14632

This paper tests the hypothesis whether self-financed property buyers, such as insurance and pension funds, have a larger effect on local house prices than bank-financed property buyers, such as homeowners. Self-financed property buyers of new residential housing are not dependent on mortgage credit and operate independently of the macro-prudential environment. This is not so for bank-financed property buyers. We examine the response of Swiss house prices to new housing investments by self- and bank-financed property buyers at the municipality level between 2008 and 2015: a period when interest rates were at the zero lower bound and macro-prudential regulation became more restrictive. Despite being a small investor class for new residential housing, self-financed property buyers have a disproportionate effect on local house prices.