The Unassuming Economist

A new IMF working paper by Ezequiel Cabezon and Christian Henn says:

“Based on a permanent income analysis, Gagnon (2018) has prominently suggested that Norway has saved too much, thereby free-riding on the rest of the world for demand. Our public sector balance sheet analysis comes to the opposite conclusion, chiefly because it also accounts for future aging costs. Unsurprisingly, we find that Norway’s current assets exceed its liabilities by some 340 percent of mainland GDP. But its nonoil fiscal deficits have grown very large (to almost 8 percent of mainland GDP) and aging pressures are only commencing. Therefore, Norway’s intertemporal financial net worth (IFNW) is negative, at about -240 percent of mainland GDP. As IFNW represents an intertemporal budget constraint, this implies that Norway’s savings are likely insufficient to address aging costs without additional fiscal action.”

 

On cross-country:

• Manufacturing decline reduces house price volatility – VOX
• How does the US-China trade war impact China’s real state market and beyond? – Knight Frank
• Tres estudios universitarios muestran que las plataformas de alquiler turístico han encarecido el mercado del alquiler en ciudades como Los Ángeles y Boston – El Pais

On the US:

• What’s up with housing investment? – Rutgers Center for Real Estate
• The Bipartisan Cry of ‘Not in My Backyard’ – New York Times
• Housing Is Back, But the American Dream Isn’t – Bloomberg
• Are More Adults Sharing Housing? – Harvard Joint Center for Housing Studies
• When the Federal Government Takes on Local Zoning – CityLab
• Where Black Homeownership Is the Norm – The Pew Charitable Trusts
• How HUD Can Help the Housing Market – Wall Street Journal
• Foreclosure Starts Increase in 44 Percent of U.S. Markets in July 2018 – ATTOM
• Investigating Metro-Area Home Improvement Spending Cycles – Harvard Joint Center for Housing Studies
• The rebounding mortgage market, in three charts – Urban Institute

On other countries:

• [Australia] That unfolding Australian house price crash – Financial Times
• [China] China Property: Monthly Report – Foresight
• [New Zealand] Will banning foreign buyers solve homelessness in New Zealand? – Reuters

Photo by Aliis Sinisalu

From Atif Mian and Amir Sufi at VoxEU:

“Charles P. Kindleberger wrote that “asset price bubbles depend on the growth in credit”. This column looks at the acceleration of the US private label mortgage securitisation market in the US in the late summer of 2003, which disproportionately reduced the cost of financing by lenders that did not traditionally rely on deposit financing for mortgage lending. The sharp rise in lending in zip codes with greater exposure to such lenders generated a boom and bust in house prices. Easier credit also appears to have been a crucial ingredient in explaining bubble cities that experienced both house price and construction booms.

Charles P. Kindleberger, who was the world’s leading expert on financial crises, wrote that “asset price bubbles depend on the growth in credit” (Kindleberger and Aliber 2005). Nobel prize winner Vernon Smith described evidence from experimental settings showing that that the size of a bubble increased when individuals were allowed to borrow (Porter and Smith 1994). Economic theorists have taken this lesson to heart, writing down models in which easier credit helps fuel asset prices through an increase in speculative buying (Allen and Gorton 1993, Allen and Gale 2000).

A core idea in the theory of credit and bubbles is that easier credit allows optimists with high asset valuations to aggressively buy assets, and therefore boost the price (Geanakoplos 2010, Simsek 2013). Even if optimists form a small part of the overall population, easier credit can allow this small group to have a large effect on the market. Further, if the optimists suddenly lose access to credit, the price of the asset will collapse before more pessimistic individuals can be induced to buy the asset. As a result, fluctuations in credit availability increase the amplitude of fluctuations in asset prices.

Our recent study tests this idea, focusing on the boom and bust in house prices from 2000 to 2010 in the US (Mian and Sufi 2018). The study focuses on a natural experiment: the sudden acceleration of the private label mortgage securitisation (PLS) market in the late summer of 2003. The sudden rise in the PLS market, which was part of the broader global rise in shadow banking during this period, disproportionately reduced the cost of financing by lenders that did not traditionally rely on deposit financing for mortgage lending. The study shows that lenders who traditionally relied on non-deposit financing, such as CountryWide and Ameriquest Mortgage Company, suddenly boosted mortgage lending in the late summer of 2003, just as the PLS market accelerated.

To test the effect of this sudden increase in credit availability on the housing market, we exploit variation across geographic areas in the US in the location of these lenders as of 2002. Zip codes where lenders traditionally relied on non-deposit financing witnessed a sudden and large relative increase in mortgage lending just as the PLS market accelerated in 2003. Our study shows several results that suggest this is a clean experiment – the sudden and large expansion of mortgage lending in these zip codes was due to the acceleration of the PLS market, as opposed to some other factor such as a change in income prospects or beliefs about house prices among those living in these zip codes.”

Continue reading here.

On cross-country:

• Our cities house-price index suggests the property market is slowing – Economist
• Global House Price Index – Economist
• Planning rules are driving the global housing crisis – Financial Times
• Opinion today: Demented by the housing crisis: Simply comparing the number of households to dwellings gives a foolishly misleading idea – Financial Times

On the US:

• Our Shrinking Supply of Low-Cost Rental Units – Joint Center for Housing Studies
• Who Owns a Home in America, in 12 Charts – Citylab
• Does Homeownership Influence Political Behavior? Evidence from Administrative Data – Stanford University
• The effects of housing supply restrictions on partisan geography – Political Geography
• Redfin doubling down on direct home buying, plans expansion of Redfin Now – HousingWire
• Housing market has hit a ‘significant slowdown’ in recent weeks, Redfin CEO says – MarketWatch
• New housing construction doesn’t fuel SF evictions, claims report – Curbed
• Hosing Homebuyers: Why Cities Should Not Pay For Water and Wastewater Infrastructure with Development Charges – D. Howe Institute
• Seattle’s Socialist City Council Member Thinks Housing Is a Human Right—Unless it Comes at the Expense of Music Venues – Reason
• Highest Share of Homeowners Likely to Move in Q3 2018 in Chicago, DC, Orlando, Tampa, Atlanta – ATTOM

On other countries:

• [China] China’s new home price growth hits two-year high as small cities boom – Reuters
• [Germany] Creating Permanent Housing Affordability: Lessons From German Cooperative Housing Models – Urban Institute
• [New Zealand] New Zealand bans sales of homes to foreigners – BBC
• [Singapore] Singapore Home Prices Won’t Pop Without More Migrants – Bloomberg

Photo by Aliis Sinisalu

From the EIU report:

“The results of the Global Liveability Index 2018 reveal that Vienna has displaced Melbourne as the world’s most liveable city. This ends a record seven consecutive years at the head of the survey for the Australian city.

This year’s Index also finds an improvement in the scores of the top-ranked cities, reflecting improvements in safety and stability across most regions. Other key findings include:

• Canadian cities outperform cities in the United States, with three Canadian cities making this year’s top ten
• Manchester, Paris and Copenhagen have seen the biggest ranking improvements among western European cities over the past year
• Osaka and Tokyo have climbed up the ranking to enter to top 10 for the first time”