The Unassuming Economist

From a NBER paper by Richard Baldwin:

“Globalisation affects the functioning of the macroeconomy. The macroeconomy’s functioning, in turn, conditions the conduct and impact of monetary policy. This is why globalisation matters for central banks. It is also why central bankers should pay attention to the evolution of globalisation. And evolve it has. This paper argues that the future of trade is trade in services – especially trade in intermediate services. Barriers are radically higher and falling radically faster for services versus goods, and, unlike farm and factory goods, there is no capacity constraint when it comes to the export of intermediate services from emerging markets. Undertaking the macroeconomic analysis for services trade that was done in the 2000s for goods trade, however, will require a substantial upgrading of the data available.”

From a NBER paper by Per Krusell & Anthony A. Smith Jr:

“The economic effects of climate change vary across both time and space. To study these effects, this paper builds a global economy-climate model featuring a high degree of geographic resolution. Carbon emissions from the use of energy in production increase the Earth’s (average) temperature and local, or regional, temperatures respond more or less sensitively to this increase. Each of the approximately 19,000 regions makes optimal consumption-savings and energy-use decisions as its climate (or regional temperature) and, consequently, its productivity change over time. The relationship between regional temperature and regional productivity has an inverted U-shape, calibrated so that the high-resolution model replicates estimates of aggregate global damages from global warming. At the global level, then, the high-resolution model nests standard one-region economy-climate models, while at the same time it features realistic spatial variation in climate and economic activity. The central result is that the effects of climate change vary dramatically across space—with many regions gaining while others lose—and the global average effects, while negative, are dwarfed quantitatively by the differences across space. A tax on carbon increases average (global) welfare, but there is a large disparity of views on it across regions, with both winners and losers. Climate change also leads to large increases in global inequality, across both regions and countries. These findings vary little as capital markets range from closed (autarky) to open (free capital mobility).”

From Josh Barro:

“It’s a pretty good week for my conversation with Adam Ozimek, an economist whose recent work focuses on the intersection between labor markets and housing.

Adam is an evangelist for remote work — perhaps in part because he lives near Lancaster, Pennsylvania, the sort of affordable mid-size city within a couple of hours of very major cities that stands to gain residents from the remote work trend — but he also has arguments that the sharp increase in partial or fully remote work is simply very important for the ways it will change how many parts of the economy operate. Here’s what Adam said:

“I think remote work really is a general purpose technology… It’s more comparable to electrification. It’s more comparable to the invention of the internal combustion engine or automobiles or something like that in the way that it’s going to ripple through everything and it’s going to have these longstanding big impacts. I’m not saying the aggregate economic impact is going to be bigger than or as big as electrification, but it’s that kind of fundamental change.”

There are few places where this effect is bigger than in housing: remote workers want larger homes, they don’t need to live so close to their offices, and they have more flexibility to choose the sort of community they live in. That’s driving all sorts of shifts in relative home prices and changing what needs to be built and where.

I think you’ll find our conversation very interesting. You can find a transcript of the episode and other relevant links at the end of this newsletter.”

Here are some links related to the podcast conversation with Adam:

Click here for a transcript of this episode.

Adam cited this paper by economists Jonathan Dingel and Brett Neiman that says 37% of jobs in America could be done entirely remotely. Here’s a helpful Reuters feature on their work.

Adam also cited economist Nick Bloom’s analysis of worker preference for remote, hybrid, and full-time in-person work.

I referenced this data from key-card company Kastle about the fraction of employees badging in to the office across different metropolitan areas, and this piece from Matt Yglesias on Chicago’s specific troubles.

Conferences

• SI 2022 Real Estate – NBER
• SI 2022 Urban Economics – NBER

On cross-country:

• Eurozone mortgage rate rises threaten house price growth. Borrowing expected to become more expensive in coming months as European Central Bank increases rates – FT
• The global housing boom is running out of steam. Where are prices going to fall most sharply? – The Economist
• Housing Boom and Headline Inflation: Insights from Machine Learning – IMF
• Era of soaring house prices is ending as central banks raise rates. Policies are tightening when major economies are either falling into recession or heading that way – The Guardian
• Will Increasing Housing Supply Reduce Urban Inequality? – International Regional Science Review
• Adapting to flood risk: Evidence from global cities – VoxEU

On the US:    

• The Understated ‘Housing Shortage’ in the United States – Institute of Labor Economics
• The Upside-Down Housing Market. What Happens After Mortgage Rates Hit A 13-Year High? – Apricitas Economics
• Home Sellers Cut Prices as Housing Market Cools. How higher mortgage rates—and frustration—are changing the playbook for sellers – Wall Street Journal
• Why Rising Mortgage Rates Don’t Mean Falling Home Prices – Barron’s
• Should DC’s Empty Office Buildings Get Turned Into Apartments? It’s clear workers will never return in full force. Developers and local officials see an opportunity. – Washingtonian
• A College Town Takes On Exclusionary Zoning. Gainesville, Florida, could be on the verge of eliminating single-family housing requirements. – Bloomberg
• Median vs Repeat Sales Index House Prices – Calculated Risk
• What Is the Future of Public Housing in America’s Cities? – AEI 
• Apartment Rents Begin Tapering Off After Record Growth. Rents are still rising at a historically fast pace but market shows signs of softening – Wall Street Journal
• What’s Ahead for the Housing Market – Goldman Sachs
• Buyers’ Expectations of Housing Availability Improve – NAHB
• A Town’s Housing Crisis Exposes a ‘House of Cards’. In the Idaho resort area of Sun Valley, there are so few housing options that many workers are resorting to garages, campers and tents. – New York Times
• Private Residential Spending Declines in June – NAHB
• The Mix of Home Buyers Is Changing, Leading to Improved Affordability – NAHB
• The Cross-Section of Housing Returns – Cleveland Fed
• New housing market data reveals a stunning shift as these 21 of the top 50 metro areas show price declines for June – AEI
• Banks Report Unchanged Home Lending Standards – NAHB

On China:

• ‘Financial monsters’: China’s bad banks complicate property crisis. Distressed asset management companies highlight the challenge Beijing faces in mobilising rescue options – FT
• Sweeping Mortgage Boycott Changes the Face of Dissent in China. Angry homebuyers have launched one of the most effective protests the country has ever seen. – Bloomberg
• China Home Sales Plunge in July, as Mortgage Revolt Deters Buyers. Sales fell on the year and from the previous month, ending a budding recovery – Wall Street Journal
• China’s Home Sales Slump Further During Mortgage Boycotts. Top 100 developers saw sales tumble almost 40% in July. Industry confidence remains at a low level, CRIC says – Bloomberg
• China Banks May Face $350 Billion in Losses From Property Crisis. Mortgage boycotts and slowing growth are rattling authorities. Pressure seen growing on China’s $56 trillion banking system – Bloomberg  
• How China can overcome its property crisis – OMFIF
• Chinese banks can withstand mortgage boycott if property prices hold – S&P Global

On other countries:  

• [Australia] From boom to gloom, Australia’s red hot property market hits reverse – Reuters
• [Australia] Will the house price collapse be different this time? A puzzling feature of the latest house price slump is that prices for top-end properties, which are usually most vulnerable to housing market corrections, are showing surprising resilience. – Financial Review
• [Austria] Austria Real Estate Market Analysis 2022 – Global Property Guide
• [Hong Kong] ‘Historic’ Hong Kong home prices: worst yet to come, with up to 30 per cent slump a possibility as market enters decline. – South China Morning Post
• [Hong Kong] Will sharp rises in interest rates diminish Hong Kong’s love affair with property? – South China Morning Post
• [New Zealand] New Zealand House Prices Sink Most Since Global Financial Crisis. CoreLogic data show biggest three-month decline since 2008. Buyer demand curbed by soaring mortgage interest rates – Bloomberg
• [Poland] Poland’s mortgage holiday for households threatens bank profits. Lenders warn moratorium will hit earnings and could result in legal action against government – FT
• [South Korea] S. Korea’s home prices to fall up to 2.8% with 100 bp rate hike – c.bank report – Reuters
• [United Kingdom] UK’s Mortgage Market Feels the Heat From Rising Rates. NatWest reports slower mortgage growth in second quarter. Lloyds predicts house prices will finally fall in coming year – Bloomberg
• [United Kingdom] The Guardian view on housing costs: a grave and growing injustice. Levelling up will be impossible as long as rents and house prices are allowed to keep on climbing – The Guardian
• [United Kingdom] Interest rates are rising – so why are mortgage rules being scrapped? Analysis: Bank ruling that borrowers don’t have to show they can afford steep repayment hikes raises questions over how to curb excessive borrowing – The Guardian
• [United Kingdom] Who took out mortgage payment holidays during the pandemic? – Bank of England
• [United Kingdom] UK house prices rise at 11% annual rate despite cost of living crisis. Strong labour market and limited housing stock push up prices as mortgage transactions cool – FT

From RICS:

” – Construction Activity Index stalls in Europe and APAC, but remains a little more resilient elsewhere
– Overwhelming majority of respondents still report material costs and shortages to be impediments
– Global workloads still anticipated to rise across all sectors, albeit expectations are being scaled back”