Are Institutional Investors the Culprit of Rising Global House Prices?

Taking advantage of the standard regulation of real estate investment trusts (REITs) around the world, we study the implications for housing markets of the entry of institutional investors in 57 cities in 15 countries for the period 2001-2022. We employ an IV approach based on the exogenous demand for REITs by pension funds triggered by changes to the retired population. We show that residential equity REIT capital flows push up multifamily house prices, and are associated with declining rents, potentially affecting households’ homeownership vs renting decisions. Estimating a CS-ECM model, we find that REITs exert long-run effects on housing markets.