The Unassuming Economist

From New Geography:

“The Urban Reform Institute has published the 2021 edition of Demographia United States Housing Affordability, which rates middle-income housing affordability in the third quarter 2020. Demographia United States Housing Affordability is a supplement to Demographia International Housing Affordability, which covers 92 major housing markets (1,000,000 or more population) in 8 nations (Australia, Canada, China [Hong Kong only], Ireland, New Zealand, Singapore, the United Kingdom and the United States). The Demographia United States Housing Affordability provides ratings in 188 markets, including the 56 major metropolitan areas included in the earlier report.

Over the past year, housing affordability has deteriorated. Urban Reform Institute President Charles Blain noted: “It is not surprising that housing affordability — given the large influx of new buyers, particularly in suburban and outlying areas — has continued to deteriorate. As a result, many low-income and middle-income households who already have suffered the worst consequences from housing inflation will see their standards of living further decline.”

Rating Housing Affordability (The Median Multiple)

Demographia rates middle-income housing affordability in four categories, ranging from the most affordable (“affordable”) to the least affordable (“severely unaffordable”), as is indicated in Figure 1. As late as the 1990s price-to-income ratios were at or below 3.0 in Australia, Ireland, New Zealand, the United Kingdom and the United States, in markets rated “affordable. Since then, there has been a substantial divergence in affordability between major markets, which research has associated with stronger land use regulation (especially urban containment). The range between least affordable and most affordable markets rose by more than four times from 1969 to 2020 (Figure 2).”

Continue reading here.

While it has been widely claimed by economists and social scientists that inequality and political polarization are on the rise today, an understanding of people’s perception of ideas of inequality, fairness, and equity has largely evaded critical study. Of late, we have come to realize that perhaps such an understanding could form the missing piece of the puzzle required for effective policymaking. Especially in the USA, researchers have begun to seek answers to questions like why so many voters vote against redistributive policies that would benefit them, such as more progressive income taxes, taxes on capital income or estates, or more generous transfer programs, and why voters have tolerated policies that have contributed to a stark rise in inequality over the past few decades.

A recent column in the The MIT Press Reader (2021) sparks discussion on the same by taking cues from the book ‘Combating Inequality: Rethinking Government’s Role’ by noted economists Oliver Blanchard and Dani Rodrik. The author of the column discusses the role of “intangibles” that cannot be observed even in high-quality administrative datasets but very closely affect the development of policies to combat the problem of high quality. These intangibles- perceptions, views on fairness, and people’s ideas about their own economic standing- are discussed at greater length.

Click here to read the full article.

On similar lines, the OECD’s recent report titled, ‘Does Inequality Matter?‘ (2021), goes a step beyond country-level averages to ultimately find out that people’s perceptions of and levels of concerns about inequality have become very widely dispersed.

“Such dispersion can only be partially explained by standard socio-economic divides across income, education, employment status, gender, age, and household size. In some instances, the dispersion of perceptions and concern becomes polarization between groups with starkly different views. Both dispersion and polarization of perceived disparities and concern have grown steeply over time. Higher levels of observed inequality are associated not only with greater perceived disparities and concerns, but with a more divided public opinion.”

The report also brings out some very intricate insights such as the fact that quite contrary to intuition, most of this increased dispersion in the perception of inequalities and concern for income disparities comes from people who are not less similar but very similar to each in socio-economic characteristics.

Click here to read Section 4 (Has the public opinion become more divided?) of the 2021 OECD Report: Does Inequality Matter?

On cross-country:

• Hostility towards private equity’s push into property is misguided. Big investors are filling a gap in the market – The Economist

On the US:   

• How Jerome Powell as Fed Chair Will Affect Crypto, Hot Housing and Inflation. Wall Street loves Powell for helping lift the stock market up from its pandemic lows. But will he continue to keep rates low and credit cheap? – Bloomberg
• Mortgage Bills Are Coming Again. $10 Billion in Aid May Arrive First. The federal Homeowner Assistance Fund aims to help those still struggling as forbearance periods come to an end. But the assistance isn’t limited to mortgage payments. – New York Times
• A record number of US homes are being built just for renters – Quartz
• Some Eviction Economics – Conversable Economist
• Home Prices Are Surging. The Manufactured-Housing Industry Sees an Opening. Some lenders and advocates think factory-built homes are a solution to the U.S. housing crunch – Wall Street Journal
• The Housing Proposal That’s Quietly Tearing Apart Atlanta. Secession efforts by Buckhead residents are gaining momentum as the city proposes zoning changes to create more apartments and affordable housing. – Bloomberg
• New York Targets Affluent Neighborhoods in Push for Affordable Housing. Supporters say the plans help address New York’s housing crisis and help integrate the city’s neighborhoods. Opponents see more gentrification and giveaways for developers. – New York Times
• Housing Is Cruising For A Bust, But Not Just Yet – Forbes  
• The destabilizing cost of a pandemic: What COVID-19 meant for renters already getting assistance – Brookings
• Mortgage Burnout Looms for Lenders. Mortgage originators are likely to feel a hangover from the pandemic boom, so they need some new tricks – Wall Street Journal
• Five things to know about rising house prices. Benjamin Keys, a professor of real estate and finance at the Wharton School, gives his five main takeaways from the recent increase in house prices. – Penn Today

On China

• China eases pressure on property sector but reform remains priority. Beijing’s policy loosening to prevent collapse of industry does not represent a retreat, analysts say – FT
• China’s Economy Czar Liu He Calls For Stable Housing Market – Bloomberg
• Will China’s property tax rob from the rich and give to the poor, aiding common prosperity drive? China’s property tax plan is part of Xi Jinping’s so-called common prosperity campaign to redistribute wealth and to address widening social inequality. The plan will not be implemented straight away, with a five year pilot programme set to test the proposal before it is eventually rolled out across the country – South China Morning Post

On other countries:  

• [Albania] A Denser City, But at What Cost? Albania’s capital is getting a makeover intended to stop urban sprawl. But critics say the plan could leave Tirana changed beyond recognition, and erase its history. – Bloomberg
• [Australia] ‘Twilight’ for Australia’s housing boom as prices to fall 10% in 2023, CBA says. Commonwealth Bank expects a peak in 2022 and then a drop the following year as borrowing costs rise – The Guardian
• [Australia] Who is responsible for housing affordability? – ABC
• [Austria] Austrian central bank sees growing risks from mortgages amid property boom – Reuters
• [Canada] Financial stability through the pandemic and beyond – Bank of Canada
• [Colombia] Striking a Balance. Toward a Comprehensive Housing Policy for a Post-COVID Colombia – World Bank
• [Hong Kong] Hong Kong conundrum: sky-high prices and flats the size of parking spaces. Ranked the world’s least affordable housing market, the cramped city suffers from a lack of supply – FT
• [New Zealand] New Zealand raises rates to 0.75% as house prices surge. Rates will have to rise above their neutral level to cool the economy, says central bank – FT
• [New Zealand] RBNZ outlines new home loan restrictions – Financial Review
• [Nigeria] Empty houses litter Nigeria’s cities despite housing crisis – Reuters
• [United Kingdom] Nationwide’s profits almost triple as mortgage borrowing stays high. UK building society reports strong demand despite expected BoE interest rate rises – FT
• [United Kingdom] Revealed: first-time homes have grown less affordable under the Tories. Guardian analysis shows situation has worsened in most of England and Wales since 2015 – The Guardian

“The COVID-19 is the fourth crisis to have hit the Middle East and North Africa (MENA) region in the decade following the Arab uprisings, the 2014-16 oil price declines, and the 2019 resurgence of protests.  It differs from the other crises because of its broad impacts and its distributional consequences. But even before COVID-19 arrived in March 2020, MENA had been facing a number of serious economic challenges — high rates of unemployment, high levels of informality, low annual economic growth, low female labor force participation, an unconducive business environment, a lack of quality jobs, food insecurity, and fragility and conflict (with large numbers of refugees).”

A recent report by the World Bank Group titled, Distributional Impacts of COVID-19 in the Middle East and North Africa Region (2021), attempts to find answers to pertinent questions regarding this, such as what are the welfare of individuals and households in MENA, and what are the key issues that policymakers should focus on to enable a quick and sustained economic convalescence? 

“The report’s findings suggest a substantial rise in poverty, greater inequality, the emergence of a group of “new poor” (those who were not poor in the first quarter of 2020 but have become poor since), and changes in the labor market (notably how hard people work and how many people work). Top policy options center on stepping up vaccination programs, resuscitating economic activity, rethinking the approach to the informal sector, boosting resilience to future shocks, and improving data quality and transparency.” 

Click here to read the full report.

Excerpts from Professor Dani Rodrik’s working paper, A Primer on Trade and Inequality (2021), for the National Bureau of Economic Research:

“In the public imagination globalization’s adverse effects have loomed large, contributing significantly to the backlash against the political mainstream and the rise of far-right populism. The literature on trade and inequality is in fact exceptionally rich, with important theoretical insights as well as extensive empirical findings that sheds light on this recent experience. Some of the key results of this literature, discussed here, are as follows: Redistribution is the flip side of the gains from trade, and it becomes larger relative to net gains from trade in the advanced stages of globalization. Compensation is difficult for both economic and political reasons. International trade often differs from other market exchanges, raising fairness concerns in ways that domestic markets do not. The economic benefits of deep integration are generally ambiguous. Dynamic or growth gains from trade are uncertain.”

Moreover, on the role of financial globalization and capital mobility the paper takes the following stand. “Researchers at the IMF have found that greater capital mobility produces strong inequality effects (Jaumotte et al., 2013; Furceri and Loungani, 2015; Furceri et al., 2017). In particular, they find that capital-account liberalization leads to statistically significant and long-lasting declines in the labor share of income and corresponding increases in the Gini coefficient of income inequality and in the shares of top 1, 5, and 10 percent of income.”

Click here to read the full paper.