Taming the real estate boom in the EU: Pathways to macroprudential (in)action

Abstract

In the fallout of the 2008 crisis, macroprudential policy has been installed as the policy remedy against future financial instability, a primary focus being developments in the real estate sector. With house prices consistently rising in the EU since 2014, causing alarm among macroprudential supervisory bodies, a core question of EU regulatory governance is how far macroprudential bodies have been capable of bringing about countercyclical actions against the build-up of such vulnerabilities. This paper investigates this question using a novel dataset of macroprudential intensity coded for the 17 EU countries that experienced real estate vulnerabilities post-euro crisis. Specifically, it asks which configuration of conditions account for the (in)capacity of countries to impose stringent countercyclical regulations against housing booms? Using fuzzy set qualitative comparative analysis technics coupled with qualitative analysis of country cases using expert interviews, we find that the absence of political salience of homeownership and the political independence of macroprudential authorities to be crucial conditions that jointly explain countercyclical macroprudential activity. These findings, which show two pathways to action have implications for the capacity of the EU to prevent future crises and future reform of the EU prudential framework.