Abstract
This paper studies the effects of monetary policy on housing rents. We provide comprehensive measures of rent inflation at a micro-geographic scale by constructing a new repeat-rent index. Using our rent index, we estimate the impulse responses of rents to monetary policy shocks by employing local projection methods. We find that monetary tightening increases both real and nominal rents. A 25 basis point increase in the 30-year fixed rate mortgage raises real (nominal) rents by 1.7 (1.4) percent 12-24 months following the monetary policy shock. The effect is driven by a shift in household demand from the owner-occupied market to the rental market. The increase in demand for rentals is accommodated by real-estate investors who capitalize on the higher rents. Our results highlight the distributional effects of monetary policy and bring into question to capacity of monetary policy to effectively control inflation.