The Effectiveness of Regulatory Policies in Curbing the Housing Price in Iran

Abstract

In recent years, policymakers have generally relied on regulatory policies to address financial stability concerns. However, our understanding of these policies and their efficacy in curbing housing prices is limited. In this paper, we examine the impact of three regulatory tools, i.e., LTV (loan to value) ratio, reserve requirement rate (RR), and capital adequacy ratio (CAR) on housing price inflation in Iran for 1993: Q2 to 2017:Q1 period. We investigate whether tightening the policy tools are useful in curbing the housing price inflation by using a vector autoregressive model. The results indicate that all three regulatory policy tools exhibit counter-cyclical impact on housing inflation, but with varying degrees of influence. While the impact of CAR tightening in curbing housing prices is quite trivial, the effects of RR and LTV tightening are roughly significant.