The Unassuming Economist

A new IMF working paper by Damien Puy, Anil Ari, and Yu Shi:

“We test whether foreign demand matters for local house prices in the US using an identification strategy based on the existence of “home bias abroad” in international real estate markets. Following an extreme political crisis event abroad, a proxy for a strong and exogenous shift in foreign demand, we show that house prices rise disproportionately more in neighbourhoods with a high concentration of population originating from the crisis country. This effect is strong, persistent, and robust to the exclusion of major cities. We also show that areas that were already expensive in the late 1990s have experienced the strongest foreign demand shocks and the biggest drop in affordability between 2000 and 2017. Our findings suggest a non-trivial causal effect of foreign demand shocks on local house prices over the last 20 years, especially in neighbourhoods that were already rather unaffordable for the median household.”

From a new IMF working paper by Adrian Alter and Elizabeth M. Mahoney:

“To identify and quantify downside risks to housing markets, we apply the house price-at-risk methodology to a sample of 37 cities across the United States and Canada using quarterly data from 1983 to 2018. This paper finds that downside risks to housing markets in the United States have seemingly fallen over the past decade, while having increased in Canada. Supply-side drivers, valuation, household debt, and financial conditions jointly play a key role in forecasting house price risks. In addition, capital flows are found to be significantly associated with future downside risks to major housing markets, but the net effect depends on the type of flows and varies across cities and forecast horizons. Using micro-level data, we identify households vulnerable to potential housing shocks and assess the riskiness of household debt.”

 

From the Financial Times:

“The UK’s national weather service, the Met Office, is to get a £1.2bn computer to help with its forecasting activities. That is a lot of silicon. My instinctive response was: when do we economists get one?

People may grumble about the weather forecast, but in many places we take its accuracy for granted. When we ask our phones about tomorrow’s weather, we act as though we are gazing through a window into the future. Nobody treats the latest forecasts from the Bank of England or the IMF as a window into anything.

That is partly because politics gets in the way. On the issue of Brexit, for example, extreme forecasts from partisans attracted attention, while independent mainstream forecasters have proved to be pretty much on the money. Few people stopped to praise the economic bean-counters.

Economists might also protest that nobody asks them to forecast economic activity tomorrow or even next week; they are asked to describe the prospects for the next year or so. True, some almanacs offer long-range weather forecasts based on methods that are secret, arcane, or both — but the professionals regard such attempts as laughable.

Enough excuses; economists deserve few prizes for prediction. Prakash Loungani of the IMF has conducted several reviews of mainstream forecasts, finding them dismally likely to miss recessions. Economists are not very good at seeing into the future — to the extent that most argue forecasting is simply none of their business. The weather forecasters are good, and getting better all the time. Could we economists do as well with a couple of billion dollars’ worth of kit, or is something else lacking?

The question seemed worth exploring to me, so I picked up Andrew Blum’s recent book, The Weather Machine, to understand what meteorologists actually do and how they do it. I realised quickly that a weather forecast is intimately connected to a map in a way that an economic forecast is not.”

Continue reading here.

On the US:

• ‘A Mask for Racial Discrimination.’ How Housing Voucher Programs Can Hurt the Low-Income Families They’re Designed to Help – Time
• Why Does It Cost $750,000 to Build Affordable Housing in San Francisco? – New York Times
• The Airbnb Effect On Housing And Rent – Forbes
• US housing finance is stuck in a complex knot of contradictions – Financial Times
• Housing regulations are getting in the way of fighting homelessness – Washington Post
• The declining elasticity of US housing supply – VOX
• Joe Biden wants tougher standards for real-estate appraisers to help black and Latinx homeowners – MarketWatch
• Special briefing on walkability – American Enterprise Institute
• Does Joe Biden Have a Plan to Stop Gentrification? – Citylab

On other countries:

• [China] History and Outlook of China’s Housing Market – SpringerLink
• [Netherlands] Dutch house price boom continues – Global Property Guide
• [New Zealand] New Zealand’s housing market bounced back strongly – Global Property Guide
• [United Kingdom] Housing insecurity, homelessness, and populism: Evidence from the UK – VOX

From a paper by Danny Quah:

“Appropriate public policy on inequality hinges critically on understanding inequality’s eects on the living conditions of the poor, on social mobility, and on nationalist populism. This paper describes two empirical regularities. First, an increase in inequality typically does not coincide with immiserisation of the poor and lower middle class. Over 80% of economies where inequality has risen since 2000 have also increased the average incomes of their populations’ bottom 50%. Second, for political upheaval, individual well-being and expectations on its trajectory matter more than inequality. When these causal factors diverge, the role of inequality is, thus, diminished. Public policy needs to counter misinterpretation and misinformation on inequality with rigorous analysis and empirical evidence.”