Residential Property Prices and Rents in a Spatial Context

The present thesis explores the relationship between residential property prices and rents in a spatial context. The first two chapters aims at estimating the spatial consequences of prices and rents when hit by a national mortgage interest rate shock. In order to identify the e!ect, I leverage a novel dataset of local prices and rents of residential properties in Italy and a novel shift share instrumental variable identification design which relies on the di!erent mortgage pick up rates by di!erent age groups. I find that prices, rents, price-to-rent ratios, population, and tenure choices all respond to a mortgage interest rate shock in an asymmetric manner both in mag- nitude and direction. In particular, richer location tends to have all higher responses in the aforementioned variables. The heterogeneous responses are useful in defining a new nuanced interpretation of price-to-rent ratios capturing both the financial and consumption nature of residential properties. I then construct a parsimonious spatial model aimed at capturing the heterogeneous effect of mortgage interest rates on both prices and rents. A structural estimation of the model, aimed at isolating the effect of the mortgage interest rate hike between 2021 and 2023, matches the observed heterogeneous responses and implies that a mortgage interest rate positive shock reduces spatial welfare inequality. The third chapter focuses on the distributional consequences of a property tax hike within an urban location. I exploit the spatial nature of the Italian property tax and the Berlusconi governments fiscal reforms of 2008-2014 to isolate the effect of the property tax on property prices. I find that property taxes reduce price dispersion, thus reducing wealth inequality, in an heterogeneous way across different residential markets.