The Unassuming Economist

Minimum wages are set to increase in China under the country’s latest five-year plan. This vox column documents that past increases led to lower employment. However, the impact is heterogeneous. Firms with high average wages or large profit margins actually increase employment, while those with low average wages or small profit margins downsize.

“Without policy action, underlying forces for housing price appreciation will likely persist (…) Prices do not appear overvalued at this time, though they have recently picked up (…) Banks’ increased exposure to mortgages bears vigilance, and buffers should be maintained. The tightening in the risk weights for LTVs above a certain level for banks, and the capital surcharge for domestically-oriented banks, are appropriate. If these measures are found to be insufficient after some period of observation, further steps may be needed (…) Government policies should become more neutral in relation to home ownership vs. renting. Current policies provide incentives for ownership, spurring demand pressures further”–these are the main points from the overall assessment of a new IMF study on Luxembourg’s housing market. 

Read the full study here, which addresses the following topics: should the housing market be a source of concern; factors driving the imbalance between housing demand and supply; households’ financial situation; and bank exposures to real estate.

“The housing market is recovering from a very sharp decline during the crisis, but prices and household leverage are well below their peak levels,” says the new IMF economic report on Estonia. The report also says that “the housing market peaked in 2007 before house prices lost roughly half of their value by 2009. Prices have risen since then, but they are roughly midway between the peak and the trough. Loan-to-value ratios on new loans have fallen from roughly 100 percent of the purchase price before the crisis to roughly 60 percent since 2010.”

In Asia, macroprudential policies related to the housing sector has been the most effective. They have reduced house price inflation by two percentage points after one quarter. Moreover, “housing-related macroprudential instruments have had an impact—particularly caps on loan-to-value ratios and the taxation of housing transactions. In particular, such instruments have helped lower credit growth, slow house price inflation, and dampen bank leverage in Asia (although the latter effect is quite small),” says a new IMF study on Macroprudential Policy and Capital Flow Measures in Asia: Use and Effectiveness. 

“House prices have been growing strongly since the crisis-related drop in 2008-09, but according to crude measures, valuations appear broadly in line with fundamentals,” according to the IMF’s annual economic report on Qatar.