Are institutional investors the culprit of rising global house prices?

Introducing the Study

This research, authored by Chiara Banti (University of Essex) and Kate Phylaktis (City St George’s University of London), is published in Real Estate Economics. It investigates the role of residential equity Real Estate Investment Trusts (REITs) in shaping house‑price dynamics across 57 cities in 15 countries between 2001 and 2022. The authors combine a large‑scale panel of multifamily housing data with a novel instrumental‑variable strategy that exploits exogenous demand for REITs generated by pension‑fund allocations to retired populations.

What REITs Are

Residential equity REITs are listed investment vehicles that must distribute roughly 90 % of taxable income as dividends and retain at least 75 % of assets in real estate. They are regulated similarly across jurisdictions, allowing a consistent cross‑country analysis. In 2022, global residential REIT capital flows averaged $360 million per quarter, representing about 14 % of total REIT activity.

Impact on House Prices

The empirical results show a positive and statistically significant relationship between REIT capital inflows and house‑price growth. A one‑standard‑deviation increase in REIT flows raises annual house‑price growth by approximately 3.4 %. The long‑run CS‑ECM model estimates a coefficient of 0.034, indicating that a $1 billion rise in net REIT equity issues is associated with a 3.4 % increase in house prices over time. These effects persist after controlling for city‑level factors (population growth, unemployment, income growth) and country‑level macro variables (short‑term rates, GDP growth, bank flows, private credit, inflation, stock returns).

Effects on Rental Markets

Conversely, REIT inflows are linked to declining rent growth. In the baseline specification, a standard‑deviation increase in REIT flows reduces real rent growth by 0.009 % quarterly, a result that remains robust at a 12‑month horizon. The authors argue that REIT‑driven investment in multifamily rental stock expands supply, thereby easing upward pressure on rents.

Construction Activity

The study also documents a positive association between REIT capital flows and new residential building permits. Over a one‑year lag, REIT inflows increase permit growth, suggesting that REITs contribute to expanding the housing stock, a key element for sustainable urban development.

Geographic Coverage and Data Quality

House‑price data derive primarily from OECD regional price indices, supplemented by national sources where necessary. Rent indices combine consumer‑price‑based measures and specialised housing‑market surveys. The dataset covers a balanced mix of advanced and emerging economies, including the United Kingdom, United States, Japan, Australia, Canada, and several European nations, providing a pan‑European perspective on REIT influence.

Methodological Rigor

To address endogeneity, the authors employ an instrumental variable that interacts pension‑fund regulation (the share of portfolios allowed in managed real estate) with the quarterly change in the share of the population aged 65 +. The first‑stage Kleibergen‑Paap F‑statistics exceed 30, confirming instrument relevance. Robustness checks include alternative REIT flow measures, post‑GFC subsamples, and placebo tests using working‑age population growth, all of which support the main findings.

Implications for Sustainable Housing

For policymakers and sustainable‑housing advocates, the evidence indicates that REITs can play a dual role: they intensify house‑price appreciation, potentially challenging affordability, yet they also alleviate rent pressure and stimulate construction of new multifamily units. Targeted regulation—such as adjusting dividend‑payout requirements or influencing pension‑fund investment caps—could harness REIT capital to expand affordable rental supply while mitigating price spikes.

Key Statistics at a Glance

• Residential REIT capital flows (average): $360 million per quarter
• House‑price growth impact: +3.4 % annual per $1 billion REIT flow
• Rent‑growth impact: –0.009 % quarterly per standard‑deviation REIT flow
• Building‑permit growth impact: positive at 12‑month lag
• Sample: 57 cities, 15 countries, 2001‑2022 These findings provide a data‑driven foundation for pan‑European discussions on leveraging institutional investment to promote sustainable, affordable housing while managing the side‑effects on property prices.