Aug 8, 2026 · 9 min · 6 segments
This episode breaks down a new Bank of England research paper on how monetary policy impacts the housing sector. It explores why rising interest rates cause house prices to fall while rents remain…
The cost of housing is a massive part of everyone's budget, whether you're buying or renting.
And lately, we've seen a perplexing trend.
Interest rates have shot up, but so have rents.
It feels counterintuitive, doesn't it? We expect higher rates to cool things down, yet rents often seem to just keep climbing.
Why isn't the monetary policy cooling the rental market?
Exactly.
This puzzling dynamic is precisely what a new paper by Daniel Albuquerque, Thomas Lazarowicz and Jamie Lenny investigates.
What's their core question?
First, empirically, how do house prices and rents actually respond to interest rate changes?
And the second?
Second, they develop a model to understand why these responses happen and what it means for monetary policy and different households.
That's a crucial distinction, the how and the why.
So, let's dive into their empirical findings first.
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The cost of housing is a massive part of everyone's budget, whether you're buying or renting.
And lately, we've seen a perplexing trend.
Interest rates have shot up, but so have rents.
It feels counterintuitive, doesn't it? We expect higher rates to cool things down, yet rents often seem to just keep climbing.
Why isn't the monetary policy cooling the rental market?
Exactly.
This puzzling dynamic is precisely what a new paper by Daniel Albuquerque, Thomas Lazarowicz and Jamie Lenny investigates.
What's their core question?
First, empirically, how do house prices and rents actually respond to interest rate changes?
And the second?
Second, they develop a model to understand why these responses happen and what it means for monetary policy and different households.
That's a crucial distinction, the how and the why.
So, let's dive into their empirical findings first.
