Cross-National Mortgage Rate Pass-Through, Residential Permitting, and Housing Rental Dynamics Across Euro Area Tenure Regimes

Standard user-cost models of housing transmission predict that higher mortgage borrowing rates cool owner-occupied dwelling valuations and residential construction while shifting marginal shelter demand into private rental markets, generating sticky or accelerating rental inflation. We evaluate whether this conditional three-market divergence holds across a balanced quarterly panel of 10 Euro Area economies from 2015Q1 to 2026Q2 (N = 460 country-quarters), co-anchored by 12- and 18-country sensitivity panels, by pairing harmonized bank lending rates for new house purchases with consistently reclassified consumer price indices for actual housing rentals, disaggregated dwelling price indices, and residential building permits. Orthogonal sum-of-squares decomposition across 450 quarterly mortgage-rate transitions shows that common calendar-quarter variation accounts for 80.03% of total variation, leaving 19.19% within-quarter cross-country variation alongside 0.78% persistent country mean differences. Conditional on country and calendar-quarter fixed effects and four lags of domestic macroeconomic and construction-cost states, a 100-basis-point quarterly increase in new mortgage rates is associated over eight quarters (N = 330) with a -12.78 log percentage point cumulative decline in total nominal dwelling prices (enumerated wild cluster bootstrap p = 0.0059; eight-outcome Holm-adjusted p = 0.0469), spanning newly built (-12.81, pointwise p = 0.0078), existing (-11.99, p = 0.0313), and real consumer-price-deflated dwellings (-8.58, p = 0.0488). The conditional joint rental-surge prediction lacks empirical support: eight-quarter nominal actual housing rentals exhibit a pointwise negative slope (-5.30 log percentage points, p = 0.0430, 95% bootstrap interval [-9.49, -0.48]) that softens under Holm multiplicity adjustment (p = 0.2148), lagged demographic controls (p = 0.1328), and 2026Q3 endpoint extension (p = 0.0645), while rentals relative to headline consumer prices remain indistinguishable from zero (-2.60, p = 0.1777). Residential permit contractions are imprecisely estimated in the 10-country construction-cost baseline (-24.89, p = 0.4375) yet reach -21.72 log percentage points at four quarters in an 18-country producer-price panel retaining France, Italy, Belgium, and Ireland (N = 652, p = 0.0281), whereas post-2022 interactions with predetermined 2019–2021 short-fixation mortgage and market-rent tenant shares remain inconclusive under small-sample lag saturation.