The Unassuming Economist

Global Housing Watch Newsletter: June 2018

Looking for something to read over the summer? We asked experts for suggestions on books and papers to read on housing markets. Below are their picks:

Modeling Spatial Housing Markets: Theory, Analysis and Policy by Geoffrey Meen
Nominated by: John V. Duca (Federal Reserve Bank of Dallas)
Why? “The book provides a well-organized, systematic treatment of what drives house prices at national, regional, and metro levels. It describes and illustrates the importance of having reasonably complete data sets and well-specified models for estimating robust and useful housing relationships.”

Color of Law: A Forgotten History of How Our Government Segregated America by Richard Rothstein
Nominated by: Svenja Gudell (Zillow Group Chief Economist)
Why? “Rothstein outlines a history of housing discrimination that many people had forgotten – from government redlining to racial covenants – and shows how they have shaped our cities and neighborhoods. He makes the case that residential integration progressed from 1880 into the mid-twentieth century, then stalled. As we mark the 50th anniversary of the Fair Housing Act, this history offers important context for researching and trying to address our current housing issues. It’s a book everyone should read, not just economists and housing experts.”

The effect of housing supply regulation on housing affordability: A review by Raven Molloy
Nominated by: Christian Hilber (London School of Economics)
Why? “I recommend this short review article to scholars interested in understanding why the cost of housing has posed a growing weight on household budgets in recent decades and why genuine housing affordability crises have emerged in many desirable (superstar) cities such as London, San Francisco, or Shanghai. While many commentators recently pointed to lax credit conditions, low interest rates, or foreign investors—all affecting demand for housing—as ‘culprits’, this article focuses on the important role of housing supply regulation. It succinctly reviews the theoretical and empirical literature, identifies gaps in the literature, and provides some directions for further research.”

Evicted: Poverty and Profit in the American City by Matthew Desmond
Nominated by: Steve Malpezzi (University of Wisconsin-Madison)
Why? “Based on Desmond’s months of field research, Evicted recounts the stories of low-income tenants and their landlords in Milwaukee during nine months of 2008-9. From the book: “If incarceration had come to define the lives of men from impoverished black neighborhoods, eviction was shaping the lives of women. Poor black men were locked up. Poor black women were locked out.” Compelling stuff, but the book is even more powerful for the fact that Desmond spends half of his research time in a poor white trailer park, drawing many important parallels between the lives of poor whites and poor blacks, men and women; without neglecting the differences. Desmond goes beyond the simple stereotypical portraiture of rapacious landlords and benighted tenants, to paint complex and realistic portraits of both.”

No Price Like Home: Global House Prices 1870-2012 by Katharina Knoll, Moritz Schularick, and Thomas Steger
Nominated by: David Miles (Imperial College London)
Why? “This paper presents very carefully constructed estimates of house prices across 14 advanced economies since 1870. It uncovers a wealth of new facts about how housing markets have developed over the past 150 years. It presents a challenge to economists to explain some different patterns in prices at different times, in particular why it was that real house prices showed no consistent upwards trend in the period from 1870 to around the middle of the twentieth century but then tripled in the next 60 years.”

Supply restrictions, subprime lending and regional US house prices by André Kallåk Anundsen and Christian Heebøll
Nominated by: John Muellbauer (Nuffield College, Oxford)
Why? “This article analyses metropolitan house prices in the US providing micro-evidence of one aspect of the financial accelerator. They estimate a 3-equation model for the 2000-2006 boom period, including equations for the housing stock and cumulative sub-prime lending volumes, to capture shifting credit conditions, controlling for heterogeneity in supply elasticities. Lagged house price appreciation, a proxy for extrapolative expectations, has consequences for the credit equation, evidence for a financial accelerator, as well as the house price equation. Thus, house prices and credit are mutually reinforcing; tighter supply restrictions lead to a stronger financial accelerator.”

Days of Slaughter by Susan Wharton Gates
Nominated by: Frank E. Nothaft (CoreLogic)
Why? “September 2018 marks the 10th anniversary of the federal government’s placement of Fannie Mae and Freddie Mac into conservatorship. Yet not that long before that, the U.S. secondary mortgage market was the envy of many countries, an example of how other nations should set up their own mortgage markets. For a generation prior to the federal takeover, Fannie Mae and Freddie Mac provided an inexpensive and stable flow of funds to America’s homeowners. Days of Slaughter provides an insider’s view as to what were some economic, political, and management issues that led to the collapse of Freddie Mac.”

Metropolitan land Values by David Albouy, Gabriel Ehrlich and Minchul Shin
Nominated by: Albert Saiz (Massachusetts Institute of Technology)
Why? “This is a really interesting paper for everyone who wants to understand housing affordability in the United States. The authors use a new database of market transactions to study the importance of land costs on the overall price of housing. The authors do not use residual estimates, but actual land transactions, which makes their estimates more reliable.”

The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class and What We Can Do About It by Richard Florida
Nominated by: Robert J. Shiller (Yale University)
Why? “I would recommend Richard Florida’s 2017 book: The New Urban Crisis, which tells us about a relation between rising inequality and urban dynamics. Rising inequality may be the most important economic issue facing the world today. His detailing the urban dimension of this is striking. His “winner-take-all urbanism” is connected to the geographical polarization of America today, and no doubt applies to other countries as well. Florida lives in Canada, where there is a similar real estate boom in superstar cities going on today.”

Milestones in European Housing Finance by Jens Lunde and Christine Whitehead
Nominated by: Susan Wachter (University of Pennsylvania)
Why? “In their edited volume, Milestones in European Housing Finance, Jens Lunde and Christine Whitehead offer a perspective of the past 25 years in European housing finance – a period including the transition from socialism, moves towards development of a common economic framework across the continent and of course, the Global Financial Crisis (GFC). By including treatises – provided by the most prominent country experts – on the development of individual nations’ housing finance systems as well as thematically-focused chapters, Lunde and Whitehead develop a view of not only the past quarter century, but also of keys for envisioning the future. This volume underlines the significance of cross-country comparisons in developing a path forward for housing finance systems across the globe.”

Photo by Pj Accetturo

The IMF’s latest report on Switzerland says that:

“Private sector leverage and real estate exposure is high. The growth rate of mortgage claims has slowed from a high base, but these claims increase by about 5 percentage points of GDP per year. Liquidity and capital of domestically-focused banks exceed regulatory minima, and profits have held up despite narrowing interest spreads. Following a series of macroprudential tightening measures during 2012–14, property prices subsequently stabilized, but have risen again recently alongside moderating mortgage interest rates. Reflecting their status as attractive global cities and internationally-traded assets, property prices in Geneva and Zurich have been among the fastest growing in the world. However, standard housing-price metrics do not indicate significant misalignment. Newer-vintage mortgages appear riskier, with nearly half exceeding indicative affordability thresholds and also carrying higher loan-to-value ratios, especially those for purchasing
investment properties.”

On cross-country:

• “Hot Property: the housing market in major cities” – Netherlands Bank
• Built on Sand? Global Housing Sector Showing Weakness – Continuum Economics
• The Dog that didn’t Bark: Social Housing in European Peripheries – Copenhagen Business School

On the US:

• Housing and expenditures: before, during, and after the bubble – Bureau of Labor Statistics
• Luxury Dorms Are Struggling to Fill Beds – Bloomberg
• Housing Sentiment Continues to Strengthen, but High Home Prices Complicate Consumer Purchase Confidence – Fannie Mae
• Developers are taking on residential building challenges by extending the concept of prefabricated housing to manufacture entire apartment buildings – New York Times
• Finding Common Ground on Rent Control – Terner Center for Housing Innovation
• Reported Mortgage Demand Falls to Three-Year Low, Fueling Lenders’ Negative Profit Margin Outlook – Fannie Mae
• Affordable Housing Is Your Spare Bedroom – New York Times
• Philadelphia Wants To Tax Housing Construction to Make Housing Cheaper – Reason
• Home Equity Lines of Credit Increase 14 Percent in Q1 2018 – ATTOM

On other countries:

• [Canada] ‘Growth coalition’ kept foreign money flowing into B.C. real estate, professor says – Globe and Mail
• [Canada] Uncertainty reigns, though Ford’s win may signal shift for Ontario housing policy – Globe and Mail
• [Canada] Foreign buying of Vancouver real estate—beware the siren call of sovereignty – Straight
• [Czech Republic] Czech central bank caps mortgage loans as property prices soar – Reuters

Photo by Aliis Sinisalu

The IMF’s latest report on Qatar says that:

“Developments in the real estate market and the related price movements warrant vigilance. The real estate price index fell by about 10 percent in 2017 (year-on-year basis) following cumulative increase of 53 percent during 2014–16, reflecting increased supply of new
properties and lower effective demand. Though banks have substantial loss absorption capacity in terms of capital and loan loss provisioning, a sharper decline in property prices presents a risk to the banking system given its sizable exposure to the real estate sector. While the banking sector can withstand even a very sharp deterioration in real estate prices and rise in NPLs (…), in its supervisory role, QCB should periodically revisit the existing macroprudential measures, such as real estate exposure limits, loan-to-value and loan-to-deposit ratios and recalibrate these as needed to ensure that they are sufficiently countercyclical. Enhanced real estate statistics would facilitate monitoring of developments in the sector.”

 

On cross-country:

• Western Cities Want to Slow Flood of Chinese Home Buying. Nothing Works. – Wall Street Journal
• International comparisons of mortgage markets, part II – Rutgers Center for Real Estate
• A Guide to Some of My Blog Posts, Hither and Yon – Steve Malpezzi
• Residential investment and economic activity: evidence from the past five decades – Bank for International Settlements
• Q1 2018: Strong house price rises continue in Europe, US and parts of Asia – Global Property Guide
• Book Review: Municipal Dreams: The Rise and Fall of Social Housing, by John Boughton – Financial Times
• Affordable housing solutions in pipes, containers and 3D printers – Reuters
• The financing of renovation in the social housing sector: A comparative study in 6 European countries – Housing Europe
• Why loan-to-value matters when you shop for a mortgage – Financial Times
• Blackstone remains global king of property funds – Financial Times

On the US:

• Can a new mayor fix San Francisco’s housing and homelessness problems? – Economist
• The Political and Policy Conundrum of Rent Control – Zillow
• A First Look at the Tax Cut and Jobs Act, the Economy, and Real Estate – Steve Malpezzi
• The Death of the Small Apartment Building – Bloomberg
• Why reducing urban traffic congestion can help the American middle class – London School of Economics
• California’s emigrants aren’t all moving to cheaper housing markets – MarketWatch
• After Years of Disinvestment, City Public Housing Is Poised to Get U.S. Oversight – New York Times
• In Vancouver, a Housing Frenzy That Even Owners Want to End – New York Times
• Los Angeles tenants increasingly engaging in rent strikes amid housing crisis – Washington Post
• Strategies for Responding to Gentrification – Harvard Joint Center for Housing Studies
• The Sharing Economy and Housing Affordability: Evidence from Airbnb – SSRN
• The Latest HUD Proposal Would Exacerbate the Housing Insecurity Crisis – Center for American Progress
• Shifting the risk of mortgage defaults from taxpayers to investors – Brookings
• Home Value Forecast: Does Quality of School System Impact Home Prices? – Pro Teck
• Housing Was Undersupplied during the Great Housing Bubble – George Mason University
• Response to the Federal Housing Finance Agency Request for Comment on How Its Regulations May Be Made More Effective and Less Burdensome – George Mason University
• Underwriting Loosening for Conventional Conforming Loans – CoreLogic
• Booming cities, unintended consequences – McKinsey
• S. house prices to rise at twice the speed of inflation and pay: Reuters poll – Reuters
• ‘YIMBY’ call to build more housing divides booming San Francisco – Reuters
• Red Tape Is What Keeps Housing Unaffordable – Foundation For Economic Education
• Boston’s housing market, in three charts – Urban Institute
• The Tight Housing Supply Is Raising Prices – Wall Street Journal
• Seattle Declares War on Workers With Wage and Housing Regulations – Mises Institute
• S. Home Flipping Rate Matches Six-Year High in Q1 2018 – ATTOM

On other countries:

• [Australia] Australia’s House Prices Retreat Appears Entrenched – Wall Street Journal
• [Canada] OPINION: All three major parties ignore real solutions to Ontario’s housing crunch – Toronto Sun
• [Canada] Steel and Aluminum Tariffs Could Leave Canada’s Housing Sector on Shakier Foundation – Wall Street Journal
• [China] Luxury Real Estate Comes to Urban Chinatowns – Wall Street Journal
• [China] China pushes state banks into home rental market at their own risk – Reuters
• [Denmark] Danish non-profit social housing and mortgage institutes – a common stand on future financial regulation – European Covered Bond Council
• [France] Airbnb: The home-sharing site’s number one destination is Paris, where it stands accused of driving up rents and house prices – Financial Times
• [Germany] Germany to toughen laws to stem steep rent hikes – Reuters
• [Ireland] Home mortgage debt outstanding legacy of Ireland’s financial crisis – Reuters
• [Ireland] Ireland’s housing crisis – The case for a European cost rental model – Nevin Economic Research Institute
• [Netherlands] Exploding house prices and imploding affordability in urban housing markets – Rabobank
• [Norway] Strong Norway house prices fuel August or September rate hike view – Reuters
• [United Kingdom] ‘Reform land valuation’ call to unlock housing plots in the UK – Financial Times
• [United Kingdom] Brexit puts a ceiling on London housing demand, prices – Reuters poll – Financial Times

Photo by Aliis Sinisalu