Flavia Paoloni

I test whether house prices and rents are related in the long and short run using a new quarterly dataset for 18 OECD countries from 1968 to 2021. If agents treat houses as assets, annual rents correspond to the yearly net present value of house expenses, a function of prices. It follows that house prices and rents should be positively related. I find evidence of cointegration in only half of countries using Johansen tests. I observe a negative response of rents to a positive shock in house prices. Two factors might explain these results: heterogeneity in house quality reducing dwellings’ comparability, and rental sector size relieving demand pressure on rental prices.