The Unassuming Economist

From the IMF’s latest report on UK:

“Barriers to labor mobility may reduce its effectiveness as a regional adjustment mechanism. Migration of workers from poor, low-productivity areas to rich and highly productive ones is an important channel through which cross-region convergence may be achieved. Factors distorting internal labor flows are potentially relevant determinants of regional disparities in income and productivity. Indeed, the pattern of internal flows for England and Wales shows that highly productive regions tend to have net outflows instead of inflows. This suggests that factors other than labor market conditions (i.e. productivity differentials) are likely significant determinants of internal migration patterns in the UK.

Housing prices (and regulations) have a significant impact on internal migration patterns in the UK. Analysis of bilateral gross flows between regions in England and Wales shows that house prices are negatively related to workers’ movement from one region to another (Box 1). Results are in line with Biswas et al. (2009), who study inter-regional migration in England, Wales, Scotland and Northern Ireland, and Rabe and Taylor (2010), who analyze internal migration flows using household-level data for 11 regions in the UK. In turn, Hilber and Vermeulen (2015) show that housing prices are significantly (causally) affected by housing regulations. The impact is economically large: if the South East (the most regulated English region) had the regulatory restrictiveness of the North East, house prices in the South East would have been roughly 25 percent lower in 2008.

Evidence also suggests that local housing regulatory constraints have affected income convergence across regions. Data on local housing regulatory restrictions for 46 English counties is used to test whether housing restrictions have affected interregional convergence in the UK. The specification, following Ganong and Shoag (2015), models the change in workers’ real earnings between 1979 and 2008 as a function of its starting level in 1979, a measure of severity of housing restrictions in the same period from Hilber and Vermeulen (2015), and an interaction term of the two variables (Table 1). The coefficient on the starting level of earnings is significant and negative, suggesting income convergence between counties with low initial earnings and counties with a high starting level of earnings. The interaction term of earnings and housing regulations is highly significant and positive, indicating a dampening effect of tighter housing regulations on the speed of convergence across counties. To the extent that earnings are correlated with productivity, housing restrictions have likely contributed to differences in productivity across regions as well.

Policy measures to promote housing supply may therefore have a positive impact on labor mobility and growth. Regulatory constraints tend to be higher and more binding in more developed and productive areas (see Hilber and Robert-Nicoud 2013). Evidence from the US suggests that lowering regulatory constraints in the more productive cities would favor a more efficient allocation of labor and have an economically significant effect on growth (Hsieh and Moretti 2017). Efforts should continue to further boost housing supply, including by easing planning restrictions, mobilizing unused publicly-owned lands for construction, and providing incentives for local authorities to facilitate residential development (Hilber 2015, IMF 2016, and OECD 2017).”

A new IMF report on UK says that “Reducing regional disparities by boosting labor productivity in underperforming regions would promote faster and more inclusive growth. Interregional differences in productivity are related to differences in well-being and inclusion. For instance, UK regions with low productivity tend to have a larger share of young population that is neither employed, in training or in education. At the same time, disparities may signal untapped potential for catching up, and if addressed may contribute to overall growth. The potential benefits of addressing regional disparities have long been recognized by UK authorities, and all recent major party manifestos promised action to reduce them. Policies should be judged based on their impact on growth and inclusion, rather than whether they narrow the gap between particular regions. The challenge for the government is to help address failures or frictions underpinning regional disparities, allowing those less successful regions to build the conditions for economic success, while not cutting off the ability of leading regions to play their role.”

Continue reading here.

From Branko Milanovic and the Globalist:

“Under the influence of Amartya Sen, we have been “nudged” towards a reassessment of the relative merits of “The theory of moral sentiments “ (TMS) and “The Wealth of Nations” (WN). Sen has done a lot to bring Smith’s early work out of relative obscurity where it was consigned by two centuries of success of The Wealth of Nations.

What remains true is that many people around the world continue to have a remarkably distorted view of The Wealth of Nations. Not much beyond the (in)famous “invisible hand of the market.”

Bad government

In reality, there are no “good guys” in The Wealth in Nations. Of course, the government comes in for special criticism.

Smith argues against its rapacity in putting up high tariffs, its foolishness in following mercantilist policies, its pettiness in constraining the system of “natural liberty,” its attempts to decide where people should live (the law of settlement, a hukou-like system was then in existence in Britain).

(…)

Bad businessmen

But businessmen are no better. As soon as they are given half a chance, perhaps just after having gotten rid of some particularly nefarious government regulation, they are back to plotting how to “restrain” the market, to pay suppliers less, destroy competitors, cheat workers (see today’s IT companies, Walmart, Amazon).

In the famous quote, “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” (Book 1, Ch. 8).

In their mad ambition, they try to rule the world (see Davos): “…the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind” (Book 4, Ch. 3, p. 621).”

 

Read the full article here.

On cross-country:

• Property still beats a pension, say retirement savers – Financial Times
• A Driverless Future Threatens the Laws of Real Estate – Bloomberg
• Yes to Affordable Housing in My Backyard – Project Syndicate

On the US:

• Booming Home Prices Spur Spending on Public Education – NBER
• America’s New Metropolitan Landscape: Pockets Of Dense Construction In A Dormant Suburban Interior – BuildZoom
• Is Rent Growth Finally Slowing? – Harvard Joint Center for Housing Studies
• America’s Other Housing Crisis: Undercrowded Suburbs – The Atlantic
• The Affordable Housing Crisis Is About to Get Worse – New York Times
• Navigating the Turbulent Economic Waters of the 2007 Great Recession and the Crash of the Housing Market – University of South Florida
• The Towers Came Down, and With Them the Promise of Public Housing – New York Times Magazine
• The Impact of TOM on Prices in the US Housing Market – The Journal of Real Estate Finance and Economics
• A Bid to Solve California’s Housing Crisis Could Redraw How Cities Grow – Wired
• Tech Wealth Turns Attention to Affordable Housing in Seattle – Wall Street Journal

On other countries:

• [Canada] Canadian mortgages held by foreigners grow, says housing agency – Reuters
• [Canada] Home Equity Extraction and the Boom-Bust Cycle in Consumption and Residential Investment – Bank of Canada
• [Canada] New CMHC study sheds light on rising house prices – CMHC
• [Canada] Canada’s housing market flirts with disaster – Financial Times
• [China] Beyond homeownership: Housing conditions, housing support and rural migrant urban settlement intentions in China – Cities
• [China] China developers retreat from Hong Kong property market – Financial Times
• [Germany] Demographic Changes and House Prices: A case study of the German Detached Houses – Journal of Regional & Socio-Economic Issues
• [Nigeria] Sub-standard housing and slum clearance in developing countries: A case study of Nigeria – Habitat International
• [Norway] Can monetary policy revive the housing market in a crisis? Evidence from high-resolution data on Norwegian transactions – Journal of Housing Economics
• [South Africa] Drought Dulls Thirst for Some of Africa’s Most Expensive Homes – Bloomberg
• [Sweden] Banks Pile Into Sweden’s Housing Market – Bloomberg
• [Turkey] Determinants of Residential Real Estate Prices in Turkey – European Journal of Business and Social Sciences
• [United Kingdom] UK house prices: Looking far into the past and into the future – VOX
• [United Kingdom] A Day of Reckoning for UK Housing – New Economics Foundation
• [United Kingdom] Sellers accept big discounts on top-end London property – Financial Times

Photo by Aliis Sinisalu

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