The Unassuming Economist

From the James A. Schmitz at the Minneapolis Fed:

“U.S. government concerns about great disparities in housing conditions are at least 100 years old. For the first 50 years of this period, U.S. housing crises were widely considered to stem from the failure of the construction industry to adopt new technology — in particular, factory production methods. The introduction of these methods in many industries had already greatly narrowed the quality of goods consumed by low- and high-income Americans. It was widely known why the industry failed to adopt these methods: Monopolies in traditional construction blocked and sabotaged them. Very little has changed in the last 50 years. The industry still fails to adopt factory methods, with monopolies, like HUD and NAHB, blocking attempts to adopt them. As a result, the productivity record of the construction industry has been horrendous. One thing has changed. Today there is very little discussion of factory-built housing; of the very few that recognize the industry’s failure to adopt factory methods, there is no realization that monopolies are blocking the methods. That these monopolies, in particular, HUD and NAHB, can cause so much hardship in our country, and through misinformation and deceit cover it up, seems almost beyond belief. But, unfortunately, it’s a history that is not uncommon. There are many other industries where monopolies have inflicted great harm on Americans, like the tobacco industry, yet through misinformation and deceit cover up the great harm.”

From Noah Smith:

“This is the fifth and final post in my series of posts about Japan. In the first post, I lamented Japan’s low-ish living standards and called for a cash-based welfare policy. In the second, I suggested some industrial policies that Japan might use to boost growth. In the third, I discussed Japan’s stagnant corporate culture and how to fix it. And in the fourth, I reviewed two books on Japanese pop culture and how it conquered the world even as the country’s economy languished.

I’ve been coming to Japan pretty regularly for 20 years now. But only this time did it really hit me how different this country feels from the place I first visited back in 2002. Not just all the shops and buildings — in fact, the building boom in big cities, though real, might be the least of the changes. Nor is it just the residue of the pandemic. Attitudes and lifestyles and culture are all different.

When I thought carefully about it, I realized that the changes mostly boiled down to three big things: The expansion of the labor force, the rise of immigration and diversity, and the country’s willingness to assert itself in the international security sphere. And although big changes like these are never the work of just one person, all of them can be traced directly to policy shifts under Japan’s longest-serving postwar Prime Minister, Abe Shinzo.

When Abe took over as PM in late 2012 (his second and much more consequential stint in that job), he inherited a country in deep trouble. It had been over two decades since the bursting of the famous land and stock bubbles, and although the country’s growth revived a bit in the 00s, it didn’t recover to previous levels. A rapidly aging and shrinking population, stagnant productivity growth, and the loss of global market share by many of Japan’s flagship companies all weighed heavily. And then in 2011, disaster struck — a massive tsunami that killed around 16,000 people and destroyed a nuclear plant, irradiating a city and leading to a popular backlash against nuclear electricity.

Abe set himself the task of turning this ship around, with a bold economic reform package called “Abenomics”, as well as some stealthier measures that may ultimately prove even more consequential. But on top of that, Abe set himself another task — the task of shedding Japan’s post-WW2 pacifism and turning it back into a “normal country” with a place in the global security framework.

To many in Japan’s expat press (which far too many Americans rely on for their news about the country), this latter goal immediately pegged Abe as a fascist. But in fact, Abe is a civic nationalist — a guy who wants to make his country stronger in any way he can. And the things Abe did to make Japan stronger — encouraging the hiring of more women, opening the country up to more immigration — often made it more liberal in the process.”

Continue reading here.

From Conversable Economist:

“Economic development typically involves a group of transitions, like the shift from agriculture to manufacturing to services. The Winter 2022 issue of the Journal of Economic Perspectives (where I work as Managing Editor) includes five papers on aspects of development-related transitions in the nations of Africa. Here are some of the big questions:

Does Africa have a manufacturing path to economic development?

In “Labor Productivity Growth and Industrialization in Africa,” Margaret McMillan and Albert Zeufack investigate Africa’s manufacturing sector. As they point out, a shift from agriculture to low-skilled manufacturing to high-skilled manufacturing to services has been a standard pattern of economic development for countries around the world. However, there are concerns that this path may not work well in the 21st century, because automated production keeps getting cheaper and thus reducing the opportunities for low-skilled jobs.

Some of the signs for industrialization in Africa are encouraging. The most comprehensive information about manufacturing employment in Africa only covers 18 countries, but based on those data, manufacturing employment in Africa’s lowand middle-income countries increased from 6 million to more than 20 million from 2000 to 2018, raising the share of employment in manufacturing from 7.2 percent to 8.4 percent (Kruse et al. 2021). In comparison, the 1990s saw zero growth in Africa’s manufacturing employment. Manufacturing exports from African nations have also grown at an annual average of 9.5 percent per year (Signé 2018). However, while employment and value-added shares of manufacturing in Africa are rising, both remain very low in comparison to the rest of the world …

But when the authors dig into the data, they find that the growth in manufacturing employment in nations of Africa has been primarily happening in small firms with less than 10 employees. Conversely, the growth in productivity in manufacturing in Africa is primarily in large firms, which aren’t adding many jobs. Many of Africa’s large manufacturing firms are in one way or another involves in processing of natural resources, which has been becoming an ever-more automation-intensive process.

Thus, the broad challenge for Africa’s manufacturing sector is for the larger firms to build linkages backward and forward into other African-based manufacturing firms, and for at least some of the small firms to make productivity gains and grow in size, so that they can become an “in-between” sector of manufacturing. One promising change is the African Continental Free Trade Area, started in 2018, which may offer possibilities for African-based manufacturing firms to sell and compete within a larger and more unified market. In addition, there are still some industries like certain kinds of textile manufacturing where low-wage labor can offer a comparative advantage in global production.”

Continue reading here.

From the IMF’s latest report on Luxembourg:

“With residential real estate prices more than doubling in a decade and (60 percent in the last 4 years),
housing is becoming a key challenge in Luxembourg. Although 2/3rd of households are homeowners,
affordability concerns have been on the rise, including for the middle-income. If continued, these
trends could hamper the country’s competitiveness and attractiveness for workers and pose risks for
financial stability in the medium term. Building on previous IMF analytical work, and looking at the
drivers of the recent housing trends as well as the government’s policies, the paper advocates for a
comprehensive strategy to reduce imbalances in the housing market. The approach includes measures
to: i) boost housing supply (e.g., by mobilizing vacant dwellings and unused land, using existing
resources more efficiently by building more, denser, faster, and at a lower cost), while increasing the
share of affordable homes, ii) contain demand pressure and reduce its geographic concentration,
iii) increase residential mobility, and iv) reduce under occupation. The paper also emphasizes the need
for a more effective and coordinated implementation of reforms.”

On cross-country:

• Will global property prices continue to remain frothy? – BFM
• Financial stability amid Russia’s war in Ukraine – European Central Bank
• Impact of final Basel III on the EU mortgage sector – Copenhagen Economics
• New Housing Supply: Empirical and Theoretical Studies – SSRN

On the US:    

• US For-Sale Homes Rise in First Since 2019, Realtor.com Shows – Bloomberg
•  U.S. house price inflation to cool as buyers sidelined by higher rates: Reuters poll – Reuters
• Lumber Is the Cheapest in Seven Months as Housing Markets Soften. Futures may sink to as low as $400 per 1,000 board feet, says analyst – Bloomberg
• A recession could throw cold water on the housing market — but that doesn’t mean it’s going to get any easier to buy a home – Business Insider
• Moving From Opportunity: The High Cost of Restrictions on Land Use – Marginal Revolution
• Big U.S. Cities Lost More Residents as Covid-19 Pandemic Stretched On. San Francisco and Chicago population totals are near 2010 levels – Wall Street Journal
• Fed Fears Hit Mortgage Bonds, Attracting Investors. Mortgage REIT Annaly Capital has raised about $3 billion in recent weeks to buy into the battered mortgage-bond market – Wall Street Journal
• County Where It Took 50 Years To Approve New Subdivision Bans New Airbnbs. Officials in Marin County, California, argue a temporary moratorium on new short-term rentals in western portions of the county is necessary to preserve the area’s limited housing stock. – Reason
• Homeownership Remains the American Dream, Despite Challenges. A new survey reveals that nearly three-quarters of Americans place owning a home above career, family and college as a sign of prosperity. – New York Times  
• Biden-⁠Harris Administration Launches Initiative to Modernize Building Codes, Improve Climate Resilience, and Reduce Energy Costs – White House

On other countries:  

• [Canada] Canada housing boom to halt next year on higher mortgage rates – Reuters poll – Reuters
• [Canada] Ontario needs new housing – and whatever the parties say, it won’t come easy – Globe and Mail
• [New Zealand] New Zealand house prices to sink 9.0% this year, another 2% in 2023 – Reuters
• [Saudi Arabia] Mortgage boom as Saudis queue up to buy first homes. Jump in lending and purchases reflects government push and drive to win support among youth – FT
• [Singapore] Singapore’s sovereign wealth fund swoops for £3.3bn UK student housing deal. Transaction signals confidence in UK rental market despite gloomy economic outlook – FT
• [Singapore] There’s a ‘massive gap’ between housing demand and supply in Singapore, PropertyGuru CEO says – CNBC
• [United Arab Emirates] Foreign demand to keep Dubai property prices on steady upward course: Reuters poll – Reuters
• [United Kingdom] BoE’s Cunliffe seeing evidence of slowdown in housing market – Reuters
• [United Kingdom] Mortgage reform is key to unlocking UK home ownership. The country is a global outlier in managing credit risk – FT 
• [United Kingdom] Bringing It Home: Raising Home Ownership by Reforming Mortgage Finance – Tony Blair Institute for Global Change
• [United Kingdom] UK housing market starts to slow as more sellers cut prices. Data from portal Zoopla also indicates average time to sell a home is lengthening – FT
• [United Kingdom] UK mortgage approvals slide to lowest level in two years. Analysts forecast housing market will cool in 2022 but believe large price falls are unlikely – FT
• [United Kingdom] Renters squeezed by higher housing costs and utility bills. Owner-occupiers have more elbow room to reduce their spending to cope with rising inflation, analysis suggests – FT