2026 General Seminar no. 4 - James Graham (USyd)

Title: Monetary Policy and the Homeownership Rate

by James Graham and Avish Sharma

Abstract: How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting effects on ownership due to rising interest rates, falling incomes, and lower house prices. To investigate, we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage finance, and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following a contractionary shock, the homeownership rate falls on impact due to rising mortgage rates, is moderately buoyed by lower house prices, but remains persistently below steady state due to lower household incomes. Homeownership dynamics are strongly influenced by mortgage borrowing constraints, property taxes, macroeconomic conditions, and household expectations about monetary policy.