The Unassuming Economist

On Nov. 30, Paul Krugman gave a very lucid exposition of why he was on “Team Transitory”. Will today’s release of the US CPI lead to a change in his position on inflation? Here’s a link to the video of the Nov. 30 webinar.

On cross-country:

• Interest rate hikes will not dim the allure of property. Whatever the gyrations of the markets, most of us seem to have an innate fondness for real assets – FT
• Gentrification and Affordable Housing Policies – CEPA

On the US:   

• Rise in U.S. house prices to halve next year, affordability to worsen – Reuters poll – Reuters
• Top Housing Markets for 2022 – Realtor.com
• Zillow’s Hot Housing Takes for 2022 – Zillow 
• Despite low mortgage rates, America’s housing market keeps many first-time buyers on the sidelines – Market Watch
• Black and Hispanic renters experience discrimination in almost every major American city. A new study finds that property managers in Chicago, Los Angeles, Louisville, Houston, and Providence are least likely to answer prospective Black and Hispanic tenants – Vox
• Is the Chance to Turn Hotels Into Affordable Housing Slipping Away? As many of the city’s hotels sat empty during the pandemic and homelessness continued to rise, some saw an opportunity to solve both problems. So what happened? – New York Times
• Housing Affordability in the Wake of COVID-19. Regional Solutions for Southern California – Berkeley
• Why is the Biden administration increasing the cost of building houses? – NPR
• Playing Catch-up: Putting the Recent Home Building “Boom” in Context. – Zillow
• You Won’t be My Neighbor: Opposition to High Density Development – Sage Journals
• Biden administration to target money laundering in US real estate market. Anti-corruption drive could raise scrutiny of all-cash commercial and residential property transactions – FT
• It Took More Than Fannie and Freddie to Set Off the Housing Crash. Don’t let the other actors off the hook. – Wall Street Journal
• I changed my mind on rent control. Rent control won’t fix the housing crisis. It’s still a good idea. – Vox
• The FHFA’s Equitable Housing Finance Plans for Fannie Mae and Freddie Mac – Urban Institute
• Assessment Frequency and Equity of the Real Property Tax: Latest Evidence from Philadelphia – Philadelphia Fed
• What can a mortgage market crisis in Ireland teach the U.S.? Boston Fed paper looks at results of approach that gave banks more freedom to modify loans – Boston Fed

On China

• Amid Evergrande crisis, more Chinese developers to issue ABS – Reuters
• China property debt crisis puts founders on spot – Reuters

On other countries:  

• [Australia] Booming house prices driving massive increase in size of inheritances to $120bn a year. Report finds that despite helping the rich Australians get richer, inheritances are also shrinking relative inequality by giving a boost to poorer households – The Guardian
• [Australia] Australian house prices will keep rising and it’s truly depressing for those hoping to get into the market. Property prices look set to continue to grow for many more months to come – and certainly at a rate faster than wages – The Guardian
• [Canada] Toronto Home Prices Rise 22% to Record With Supply Vanishing – Bloomberg  
• [Canada] Red-hot Canadian property market to lose some steam in 2022: Reuters poll – Reuters
• [Denmark] Claudia Buch: A decade of macroprudential policy – Central Bank of Denmark
• [India] Indian house prices to lag inflation; affordability to improve – Reuters
• [Ireland] An Overview of the Irish Housing Market and Policy – Government of Ireland
• [New Zealand] New Zealand central bank says low net migration could cool housing prices. Easing of soaring property costs may affect RBNZ rate rise forecast next year, says deputy governor – FT
• [United Arab Emirates] Dubai property prices to get boost next year from foreign demand – Reuters
• [United Kingdom] London developers target old offices at risk of becoming stranded assets. Tighter efficiency rules leave owners of older buildings with choice of costly refurbishment or selling at a discount – FT
• [United Kingdom] UK house prices rise at fastest pace in 15 years. Record property values driven by limited housing stock and low lending rates as London market lags – FT
• [United Kingdom] British housing boom created £3tn ‘unearned’ and ‘unequal’ windfall. Resolution Foundation calls for review of tax treatment of main residences to tackle disparities caused by untaxed gains – FT
• [United Kingdom] U.K. House Prices Keep Rising on a Dearth of Supply – Bloomberg

A recent article in the Financial Times by Martin Sandbu discusses in detail the state of inequality prevalent in the world today. Taking a cue from the World Inequality Report released by the World Inequality Lab on December 7th, 2021, the author makes an important point about the premature fiscal austerity of rich countries exacerbating inequalities after a pandemic (Furceri, Loungani, Ostry, Pizzuto, 2021).

Some other trends highlighted in the article include:

“First, global inequality (between countries) was pretty constant in 2020 compared to the year before — but that stalled a trend of falling inequality since the early 2000s.

Second, global inequality of individual wealth took a jump last year, when the share of global wealth owned by the world’s billionaires increased by half (from 2.2 to 3.3 percent) and that of the top 0.01 percent wealthiest individuals increased by about a percentage point (from 10.3 to 11.1 percent). At the same time, the wealth of the broader top 1 percent group remained stable, both in the US and Europe, so the winners of greater wealth inequality were extremely concentrated at the very top.

Third, Europe is the most egalitarian continent, whether measured by income inequality, wealth inequality, or inequality of individual carbon emissions, the WID’s data on which are fascinating and important. (They show that middle-income people in rich countries emit less than the top 10 percent in some poorer regions.)”

It then goes on to discuss some reasons which explain why Europe is more egalitarian than the US, the role of taxation and public spending for measures to promote equality, etc.

Click here to read the full article.

From a NBER paper by Rebecca Diamond and Enrico Moretti:

“Income differences across US cities are well documented, but little is known about the level of standard of living in each city—defined as the amount of market-based consumption that residents are able to afford. In this paper we provide estimates of the standard of living by commuting zone for households in a given income or education group, and we study how they relate to local cost of living. Using a novel dataset, we observe debit and credit card transactions, check and ACH payments, and cash withdrawals of 5% of US households in 2014 and use it to measure mean consumption expenditures by commuting zone and income group. To measure local prices, we build income-specific consumer price indices by commuting zone. We uncover vast geographical differences in material standard of living for a given income level. Low-income residents in the most affordable commuting zone enjoy a level of consumption that is 74% higher than that of low-income residents in the most expensive commuting zone.

We then endogenize income and estimate the standard of living that low-skill and high-skill households can expect in each US commuting zone, accounting for geographical variation in both costs of living and expected income. We find that for college graduates, there is essentially no relationship between consumption and cost of living, suggesting that college graduates living in cities with high costs of living—including the most expensive coastal cities—enjoy a standard of living on average similar to college graduates with the same observable characteristics living in cities with low cost of living—including the least expensive Rust Belt cities. By contrast, we find a significant negative relationship between consumption and cost of living for high school graduates and high school drop-outs, indicating that expensive cities offer a lower standard of living than more affordable cities. The differences are quantitatively large: High school drop-outs moving from the most to the least affordable commuting zone would experience a 26.9% decline in consumption.”

On December 7th, 2021, the World Inequality Lab released the World Inequality Report 2022, authored by the Lab’s co-director and economist Lucas Chancel and economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. Through the course of its 10 chapters, the report covers insights on themes like changing global economic inequality, the rise of multimillionaires, the disproportionate burden of labor income discrimination on women, carbon inequalities, tax justice, and sustainability. Some notable statistics from the report yield the following results:

1. Income inequality: Globally, the richest 10% of the population currently earns 52% of the global income, whereas the poorest half of the population earns 8% of it. On average, an individual from the top 10% of the global income distribution earns €87,200 (USD122,100) per year, whereas an individual from the poorest half of the global income distribution makes €2,800 (USD3,920) per year.
2. Wealth inequality: The poorest half of the global population barely owns any wealth at all, possessing just 2% of the total. In contrast, the richest 10% of the global population own 76% of all wealth. On average, the poorest half of the population owns PPP €2,900 per adult, i.e. USD4,100 and the top 10% own €550,900 (or USD771,300) on average.
3. Regional variations in inequality: In Europe, the top 10% income share is around 36%, whereas in MENA it reaches 58%. In between these two levels, we see a diversity of patterns. In East Asia, the top 10% makes 43% of total income and in Latin America, 55%. Moreover, while some countries have experienced spectacular increases in inequality (including the US, Russia and India) others like European countries and China have only experienced a little rise.
4. Nations have become richer, but governments have grown poorer: Private wealth has grown immensely but the share of the public sector in total national wealth is close or euqal to 0 in rich countries.
5. Gender inequalities in labor income: Women’s share of total incomes from work (labor income) neared 30% in 1990 and stands at less than 35% today

The report also includes excerpts from Thomas Piketty’s upcoming book titled, ‘A brief history of inequality‘, slated for release in 2022 in the concluding chapter.

Click here to access the full report.