The Unassuming Economist

A new IMF working paper by Iacovos Ioannou says that:

“Lithuania’s current credit cycle highlights the strong link between housing prices and credit. We explore this relationship in more detail by analyzing the main features of credit, housing price, and output cycles in Baltic and Nordic countries during 1995–2017. We find a high degree of synchronization between Lithuania’s credit and housing price cycles. Panel regressions show a strong correlation between a credit upturn and housing price upturn. Moreover, panel VAR suggests that shocks in housing prices, credit, and output within and
outside Lithuania strongly impact Lithuania’s credit.”

The IMF’s latest report on Singapore says that:

“In the housing market, prices of private residential properties staged a steady recovery in 2017, for the first time since 2013, and were up by 5.4 percent y/y in 2018Q1. The share of foreign transactions has remained stable over the past six years (close to 7 percent) but is significantly below the 2011 peak (19.5 percent). Vacancy rates have come down slightly but
are still elevated. In recent quarters, supply in the pipeline (i.e., new and redevelopment projects of private residential units with planning approvals that are expected to be on the market within a few years) has also increased after a few years of falling.”

Singapore’s property market policies are comprehensive, aiming to manage demand and supply with active monitoring and periodic adjustments. Staff’s empirical analysis suggests that the prices of private housing in Singapore are affected by a host of factors, including incomes, rents and interest rates, and by supply and cost determinants. Moreover, while housing prices in major Asian cities are increasingly synchronized, Singapore’s property prices appear to have decoupled and are now relatively attractive to international investors (…). Singapore’s comprehensive set of property market cooling measures, including Additional Buyer’s Stamp Duty (ABSD) and limits on Total Debt Servicing Ratio (TDSR) and Loan to Value (LTV) caps, have been critical to stabilizing the property market. Property prices picked up in the last three quarters and are expected to increase further in the near term. Staff analysis also suggests that prices are now moderately above levels consistent with long-term fundamentals. Higher private property prices have been accompanied by increased transaction volumes amid a stronger economy, improved market sentiments, and the recent increase in collective sales for redevelopment projects. The Seller’s Stamp Duty was relaxed in March 2017. In the 2018 Budget, the Buyer’s Stamp Duty was raised by one percentage point for residential properties valued over S$1 million, justified by the need to make property
taxation more progressive.

Against this background, staff’s views on property market measures are as follows:

• On the demand side, property market cooling measures should be maintained, including structural macroprudential policies (TDSR and LTV caps) and cyclical measures, such as ABSD, given the elevated financial risks. However, ABSD is a residency-based capital flow management/macro-prudential measure, and staff recommends eliminating residency-based differentiation by unifying rates (lowering rates charged foreigners to the level charged Singaporeans and foreign residents), and then phasing out the measure once systemic risks from the housing market dissipate.

• On the supply side, housing supply in the pipeline has continued to rise in 2018Q1. A large part of those will be on the market for sale in later this year or the next year, adding significant new supplies of housing stock. Staff encourages the authorities to continue to monitor the supply side to ensure that sufficient land is reserved and released in a timely manner through the government land sales program. In addition, other supply-side measures such as the process of building approval could be targeted to meet housing demand.”

The IMF’s latest report on China says that:

• “Housing inventories in smaller cities declined considerably, due in part to social housing programs. House price growth moderated following the tightening measures since late 2016.”

• “A more sustainable housing market. The government’s “long-term mechanism for housing” appropriately focuses on addressing fundamental supply-demand imbalances. Ensuring long-run sustainability of the housing market requires increasing land supply for residential housing, promoting rental markets, and reducing the reliance of local governments on land sales. De-emphasizing growth targets would allow housing investment to be driven by long-run fundamentals, rather than the need to manage economic cycles. Staff’s projection indicates that residential investment, a key growth engine over the last decade, will decline as a share of GDP over the medium term as household income and consumption growth moderates.”

On the US:

• Gen X rebounds as the only generation to recover the wealth lost after the housing crash – Pew Research Center
• ‘Severe’ housing shortage hits US home sales, lifts prices – Financial Times
• Airbnb pulled out every trick to stop NYC from curbing rentals – CNET
• The Millionaire’s Mortgage – Slate
• How Washington could actually make housing more affordable – CNN
• When Black Lawmakers Get Elected, Zoning Decisions Change – CityLab

On other countries:

• [China] Stabilizing China’s Housing Market – VoxChina
• [United Kingdom] Millennials must fight for their right to housing – Financial Times
• [United Kingdom] London house prices are falling, and remain as unaffordable as ever – Quartz

Photo by Aliis Sinisalu

The latest IMF’s report on Slovak Republic says that:

“To complement macroprudential policy efforts, consideration could be given to reducing tax subsidies for owner-occupied housing (…). Staff’s analysis shows that the tax on owner-occupied housing in Slovakia is just 58 percent of the tax-neutral benchmark indicating sizable subsidies consisting of untaxed capital gains and exemption of imputed rent. In Slovakia, main residences are exempt from capital gains tax after 2 years of tenure, which contributes to tax subsidy. The average subsidy on untaxed capital gains could be reduced from the current level of 18 percent to bring it in line with the EU average of 13 percent. In addition, there are also direct subsidies for home ownership for individuals under the age of 35.”