Housing Purchase versus Rental in Spain

One of the most salient features of the Spanish housing market, compared to other European economies, is its relatively low rental share. This may be partly attributed to the existence of .scal distortions in Spain favoring ownership. In this paper, we simulate the potential e¤ects of two measures aimed at homogenizing the .scal treatment of ownership and renting: eliminating the existing subsidy to housing purchases, and introducing a comparable subsidy to rental payments. We do so in the context of a DSGE model featuring a market for owner-occupied and rented housing, as well as collateral constraints in loan markets. We .nd that both measures raise the rental share by a similar amount. However, whereas eliminating the subsidy to housing purchases reduces real house prices and construction activity substantially, introducing a subsidy to rentals has small e¤ects in the opposite direction