The Unassuming Economist

From the IMF’s latest report on Vietnam:

“Real estate prices have rebounded from the lows seen in the GFC but remain well below the
highs of 2008. Price-to-rent ratios suggest that the increase in property prices is in line with growing demand for housing from a rapidly growing urban middle class with rising incomes (…). The availability of affordable housing is also increasing, supported in part by low-interest mortgage lending by SOCBs.”

From a new paper by Bank of Israel and Hebrew University:

“In this paper I overview the development of macroprudential policy (MPP) and, in particular, its regulatory structure, its influence on the financial system, and its costs and benefits. I find that the effectiveness of MPP depends on the institutional setup in which it is implemented it: often, MPP is under the responsibility of the central banks, but this setup may generate conflicts between MPP and traditional monetary policy. I also discuss another issue undermining the effectiveness of MPP, namely, “leakages,” migrations of financial activity outside the scope of application and enforcement of the MPP tool. Based on the Israeli experience of implementing MPP, I argue that coordination between the regulatory authorities supervising different segments of the financial system is crucial for the successful implementation of MPP.”

On cross-country:

• European House Prices Tell Very Different Economic Tales: Chart – Bloomberg

On the US:

• Homeownership Aspirations: The Enduring, But Evolving, American Dream – Zillow
• Even fully employed and moderate income households struggle to-pay the rent – Harvard Joint Center for Housing Studies
• How a Tiny Bank From the Ozarks Got Big and Outpaced Wall Street’s Real Estate Machine – Bloomberg
• Housing an Aging Region – Urban Institute
• Building and Protecting Affordable and Adequate Rental Housing – Urban Institute
• Rebuilding and Sustaining Homeownership for African Americans – Urban Institute
• Tackling Southeast Michigan’s Biggest Housing Challenges – Urban Institute
• The state of millennial homeownership – Urban Institute
• Under US housing policies, homeowners mostly win, while renters mostly lose – Brookings
• Pentagon Says It Won’t Pay for Housing of Immigrants – Foreign Policy
• Trying to Cut Crime in Public Housing by Making It More Livable – New York Times
• Labor Demand Shocks and Housing Prices across the US: Does One Size Fit All? – Institute of Labor Economics
• House Money: Wall Street Is Raising More Cash Than Ever for Its Rental-Home Gambit – Wall Street Journal
• Americans Burdened by Increasing Housing Costs, Slow Wage Gains – Bloomberg
• Shared Prosperity (or Lack Thereof) in the Sharing Economy – Purdue University, Washington Post

On other countries:

• [Australia] Australian Tightening of Property Loan Standards Mostly Over – Bloomberg
• [Canada] Toronto And Vancouver Top-Tier Housing Markets Headed In Opposite Directions: Sotheby’s – Huffington Post
• [Canada] Vancouver, Can We Talk About Housing Without Getting So Angry? – The Tyee
• [China] Why women own less housing assets in China? The role of intergenerational transfers – Journal of Housing and the Built Environment
• [China] China scales back property subsidies, adding to growth concerns – Financial Times
• [China] China: An Uneven Housing Market – Continuum Economics
• [China] China to restrict subsidies for shantytown redevelopment projects – Reuters
• [Japan] Lack of supply drives rise in Kyoto’s property prices – Financial Times
• [Singapore] Three Charts That Help Explain Singapore’s New Property Curbs – Bloomberg
• [Spain] El precio del alquiler en España sigue sin encontrar techo – Reuters
• [Singapore] Singapore’s Cooling Measures and Its Housing Market – Journal of Housing Economics
• [United Kingdom] Bank of England should aim to freeze house prices for five years – report – Guardian

Photo by Aliis Sinisalu

From a new IMF working paper:

“The risk shifting incentive identified by Jensen and Meckling (1976) can induce excessive
risk taking by banks in a competitive environment (Hellmann, Murdock, and Stiglitz (2000)).
This paper tests this risk shifting hypothesis of competition in the U.S. mortgage market
between 2000 and 2005. Our study exploits a natural exogenous variation of local house
price volatility in the cross section of U.S. cities and counties, one of the most important
sources of risk for mortgage returns. This paper finds that banks in high-competition markets
lowered their lending standards (e.g., raising the loan-to-income ratio and acceptance rate) in anticipation of high house price volatility while those in low-competition markets did not, an indication consistent with the risk shifting hypothesis.

This paper also examines the real economic consequences of this risk taking pattern through
the credit supply channel. In particular, it studies the change in local employment in
non-financail sectors at the beginning of the Great Recession. We find that between 2007 and
2009 non-financial sector employment in high competition markets lost 1.5 percent for one
standard deviation increase in local house price volatility, while this relationship was
insignificant for low-competition markets. This exercise identifies a credit-supply channel, in
addition to the demand channel shown in Mian and Sufi (2014), that contributed to the rise in non-financial sector unemployment during the Great Recession.

The analysis in this study shows the importance of banks’ risk taking incentive due to
competition prior to the recent crisis. It helps deepen the understanding of why the financial
sector had accumulated so much mortgage risk despite that an reverting house price would
lead to massive mortgage defaults (e.g., Palmer (2015)). When studying the impact on the
real economy such as non-financial sector employment, this risk taking pattern can also be
used to identify the credit supply channel of bank lending. This analysis offers a possible
strategy to disentangle the supply and demand effects of bank lending on real economic
activities.”

On cross-country:

• Global cities record weakest [house] price growth since 2015 – Knight Frank
• Top employers are helping with city housing – Raconteur
• Airbnb’s newest weapon against regulation: The Real Estate Industry – Wired

On the US:

• Are Affordability Perceptions Reducing Household Mobility and Exacerbating the Housing Shortage? – Fannie Mae
• Why does cost of living vary so much? Housing, housing, housing – Federal Reserve Bank of St. Louis
• Why is it so difficult to live where you work? Housing costs and homeownership in economic centers – Federal Reserve Bank of St. Louis
• What Will It Cost to Fix New York’s Public Housing? – New York Times
• San Francisco Is So Expensive, You Can Make Six Figures and Still Be ‘Low Income’ – New York Times

On other countries:

• [Australia] The Outlook for the Housing Market – Reserve Bank of Australia
• [Canada] Pricey Vancouver Housing Market Weakens With Buyers on Sidelines – Bloomberg
• [Germany] Berlin Aims to Cut Its Residential Real-Estate Boom Down to Size – Wall Street Journal
• [Hong Kong] Don’t Expect Hong Kong’s Vacant-Home Tax to Cool Prices – Bloomberg
• [Ireland] Irish lenders told to raise capital buffers – Financial Times
• [Singapore] Singapore Property Curbs Are a Mallet, Not a Hammer – Bloomberg
• [Spain] Housing In Spain: An Unbalanced Market, But Not A Bubble – The Corner
• [United Kingdom] Policy Exchange: housing speech – UK.Gov
• [United Kingdom] UK housing market stuck in doldrums as prices stagnate – Financial Times

Photo by Aliis Sinisalu