The Connection Between Monetary Policy and Housing Prices: Public Perceptions and Expert Communication

Philipp Poyntner
Paris Lodron University Salzburg

Sofie R. Waltl
University of Cambridge & Vienna University of Economics and Business

Abstract

How do non-experts believe monetary policy works, especially with regard to the housing market? To investigate this question, we conduct a survey experiment among 3,800 residents from Austria, Germany, Italy, Sweden and the United Kingdom. First, when asked directly about monetary policy, more than half of the respondents seem to understand the basic principles of conventional monetary policy (higher prices will lead to an increase in policy rates). For unconventional monetary policy (quantitative easing), only one tenth of the respondents select the correct answer. Second, 75% of respondents think there is a connection between interest rates and housing prices. Third, survey participants overwhelmingly link interest rate decreases to increasing house prices, in line with economic theory. Fourth, a limited number of participants correct an initially wrong assessment of the nexus between monetary policy and house prices when presented with information by academic economists or central bankers. Participants are more reactive to information provided by academic economists. Our paper thus provides a first insight into the public perception of the link between monetary policy and housing prices. This information is crucial for implementing successful monetary policy.

JEL Codes: E52, R31, D84.
Keywords: Monetary policy, housing markets, survey

This research benefits from funding by the FNR Luxembourg National Research Fund, CORE Grant No. 3886 (ASSESS) and the Jubiläumsstiftung der Wirtschaftsuniversität Wien, Grant No. 27001764 (H-WELL).

Dissemination

Presentations (incl. scheduled): [1st Workshop on Residential Housing Markets: Perceptions and Measurement, Luxembourg][3rd Workshop on Residential Housing Markets: A Market in Distress and Potential Solutions, WU Vienna][38th IARIW General Conference, King‘s College in London][SCEUS Young Scholars Workshop, Salzburg][5th International Workshop on Rent Control, Tarragona][1st Housing Policy Symposium, WU Vienna]