When investors move in: new dynamics in European housing markets

4 April 2025

By Emil Bandoni, Giorgia De Nora, Margherita Giuzio, Ellen Ryan and Manuela Storz

Institutional investors have been shaking up Europe’s housing markets over the past decade: if you are renting in major cities like Paris, Dublin or Madrid, there is a good chance your landlord is an investment company, insurance corporation, or pension fund. The same goes for large parts of Germany and the Netherlands (Chart 1). Purchases of residential properties by institutional investors have more than tripled in the last decade.^[1]

The growing footprint of institutional investors impacts the housing market – and by extension the economy – in ways private households alone never could. Our research indicates that increased purchases by these investors may push up housing prices and increase mortgage borrowing by households. In this way investors can amplify the effects of monetary policy. As institutional investors increasingly influence house prices, the link between local wages and house prices also appears to weaken. Where this results in overvaluation it may create instability in housing markets.

So, what happens when institutional investors move into the housing market?

Higher prices, looser ties to local economies

Studying institutional investor activity in euro area housing markets over the period 2007-2021, we find that when institutional investors increase their purchases of residential real estate, house prices rise and stay elevated for an extended period. This is because these investors often buy in bulk, which increases demand and pushes prices up. Hence, when institutional investors move in, buying a house or flat becomes more expensive.

In markets where institutional investors are more active, the traditional link between local wages and house prices weakens. Normally, as households tend to buy locally, house prices in a region, city or neighbourhood reflect how much residents earn. Large investors, however, move in a different rhythm. Their behaviour reflects the broader financial trends and investor sentiment among competitors. While on one hand this may insulate house prices from downturns in the local economy, it can also make housing less affordable for local residents, especially first-time buyers.

A New Link Between Housing and Monetary Policy

One channel of monetary policy transmission goes through housing markets. Central banks aim to influence household borrowing and spending. For example, lower interest rates increase households’ borrowing capacity, pushing up house prices and stimulating wider economic activity. Our research shows that monetary policy also operates through institutional investors. When the ECB lowers interest rates, institutional investors increase their property purchases, driving house price growth. In fact, we find that institutional investors appear to be even more sensitive to monetary policy changes than households, suggesting that their presence may amplify the transmission of monetary policy.

Moreover, we find that investor activity in the housing market appears to have spillover effects for the actions of households. We find that increased housing purchases by institutional investors lead to a persistent increase in mortgage borrowing by households, which again will have implications for house prices.^[2]

Why the growing footprint of institutional investors matters

The growing role of institutional investors in the housing market presents both opportunities and risks. On the one hand, they provide liquidity and stability to housing markets, particularly during local economic downturns. On the other hand, where institutional investor activity results in house price overvaluation this will also make the market more vulnerable to price drops. This in turn can have serious repercussions for overall financial stability.

Furthermore, a significant share of institutional real estate buyers are “open-ended” investment funds. That means investors who put their money in the funds can also ask for it back with a defined notice period. However, real estate assets are illiquid, meaning that the funds cannot sell them at short notice, at least not for a reasonably fair price. This asymmetry of illiquid assets and relatively short-term funding creates liquidity risks: if many investors ask for their money back at the same time, the fund manager may have to sell buildings quickly. To do that, they may have to sell at discounted prices. This dynamic in turn can create negative self-reinforcing cycles. In such a case, a market downturn could push many investors to redeem their investments. This, in turn, would push more fund managers to fire-sell buildings at discounts, further depressing markets and creating a downward spiral.

These risks raise important questions for regulators and policymakers about how best to safeguard financial stability while ensuring housing markets can benefit from having a diverse range of participants.

Looking Ahead

For better housing and financial policies, we need to understand how institutional investors impact the housing market. Policymakers should aim to balance the benefits and disadvantages of institutional investment. Our findings highlight the importance of widening the macroprudential toolkit. Potential policy tools could include lower redemption frequencies and adequate liquidity buffers for real estate investment funds, as well as longer notice and settlements periods, and minimum holding periods.

The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

Check out The ECB Blog and subscribe for future posts.