The Unassuming Economist

Global Housing Watch Newsletter: February 2018

This post is written by Niall O’Hanlon. Mr. O’Hanlon joined the IMF in 2015 as a senior economist in the Real Sector Division of the IMF’s Statistics Department. Prior to joining the IMF, Mr. O’Hanlon was Head of Prices Division at the Central Statistics Office Ireland (CSO). During his 14-year career at the CSO he introduced a number of new statistical products including the Residential Property Price Index (RPPI) and the Services Producer Price Index (SPPI).

A recent G-20 Thematic Workshop on Residential and Commercial Property Price Indices provided the participating countries with an opportunity to exchange views on compilation practices and use of the residential and commercial property prices for policy purposes, as well as on country-specific challenges. It highlighted progress and identified key challenges in the compilation of such indices. To advance work, participants agreed on the need to be pragmatic, data-oriented, and take account of available private source data.

The workshop, which is part of the 2018 work program of the G-20 Data Gaps Initiative (DGI), aimed to support the participant economies’ efforts to advance the implementation of two challenging recommendations on the compilation of real estate price statistics. As Argentina holds the G-20 Presidency in 2018, the event was hosted by the Instituto Nacional de Estadística y Censos de la República Argentina in Buenos Aires on January 29-30, 2018. The workshop was jointly organized by the Bank for International Settlements (BIS), Eurostat, IMF, and the Organisation for Economic Co-operation and Development. About 80 officials attended the event.

DGI and Real Estate Price Statistics  

In 2009, the G-20 Finance Ministers and Central Bank Governors endorsed twenty recommendations to address data gaps revealed by the global financial crisis. The initiative, aimed at supporting enhanced policy analysis, is led by the Financial Stability Board and the IMF. The first phase of the DGI was successfully concluded in September 2015 when the second phase (DGI-2) was launched. The DGI-2 aims to implement, through the five-year horizon of the initiative, the regular collection and dissemination of common datasets that are relevant for policy use in the G-20 economies. Two of the DGI-2 recommendations specifically cover real estate price statistics: Recommendation II.17 on Residential Property Price Indices (RPPIs) and Recommendation II.18 on Commercial Property Price Indices (CPPIs).

Compilation of Residential Property Price Indices

For residential property prices, Recommendation II.17 aims that, by 2021, the G-20 economies compile and publish RPPIS broadly representative of the residential property market and consistent with the Handbook on Residential Property Price Indices preferably as official statistics. Additionally, it has been agreed that associated indicators on housing would be included in the project to provide as complete a picture as possible of the residential real estate market.

The recent workshop in Argentina confirmed that good progress was made by the participants in compiling and reporting the RPPI data with 19 of the economies now reporting indices to the Bank for International Settlements. However, compilation practices across participating economies vary in terms of coverage, source of data; quality-mix adjustment methods, the length of timeseries, and the availability of aggregated data.

Key challenges for compilers include availability of transaction prices (as opposed to appraised prices) and the time lag between the actual transaction and its recording. Several participating countries discussed research on using Big Data, primarily collected from real estate websites, in place of administrative data found to be inadequate. Compilation of RPPIs is an ongoing process and even after indexes are published, compilers should continuously strive to improve them through better source data and improved compilation methods. Presentations from a number of countries highlighted recent and ongoing developments in respect of such improvements.

Indicators on Housing

Following the June 2017 Global Conference on the DGI, a template on house prices and related housing indictors was put forward to the G-20 economies for written consultation, and subsequently endorsed at the January 2018 workshop. The template is organized around five topics aimed at better understanding the housing market situation in individual countries:

• RPPIs;
• Other price indicators relating to housing;
• The residential property market;
• Housing stock – size, value and vacancy rates; and
• Construction.

The template provides for all indicators definitions, breakdown, geographical coverage, frequency, measures and starting periods and distinguishes between higher and lower priority indicators.

Participants emphasized the strong demand for RPPI data for policy use such as monetary policy, monitoring economic performance (including at regional level) and forecasts, and for financial stability surveillance.

Compilation of Commercial Property Price Indices

For the emerging development of CPPIs, Recommendation II.18 of the DGI aims to enhance the guidance on the compilation of CPPIs and to encourage dissemination of data prices via the BIS website.

Eurostat has recently published a statistical report on “Commercial property price indicators: sources, methods and issues.” The publication underscores the challenges in compiling official CPPIs and related measures of the commercial property market. These include the limited availability of information on transactions, heterogeneity of commercial properties complicating the quality mix-adjustment methods, and scarce expertise.

Recognizing these difficulties, the participants in DGI thematic workshop broadly agreed that the way forward should be pragmatic, data-oriented, and should also support the compilation of other commercial property market indicators—consistent with the requirements for a broader range of real estate market indicators to inform financial sector risk and macroprudential policy. Participants also broadly agreed that a short to medium-term solution is to rely on already available price and associated indicators from private sources.

Relative to the availability of RPPIs, a reduced number of G-20 economies compile CPPI data, and in most cases, improvements are needed.

Upcoming Events on Real Estate Price Statistics

The Central Bank of the Republic of Turkey will host a workshop on compilation of CPPIs in May 2018. In February 2019, Eurostat will organize an International Conference on Real Estate Statistics.

On the US:

• Jon Gray: Blackstone’s real estate chief turns heir apparent – Financial Times
• The Role of Technology in Mortgage Lending – Federal Reserve Bank of New York

On other countries:

• [Australia] Housing Market Imbalances in Australia: Development, Prospects, and Policies – IMF
• [Australia] Household Indebtedness and Mortgage Stress – Reserve Bank of Australia
• [Canada] Canada province readies housing plan amid affordability crisis – Reuters
• [Canada] British Columbia takes aim at housing speculation – Reuters
• [Canada] Vancouver’s Hot Housing Market Gets Tougher for Wealthy Chinese – Bloomberg
• [China] Housing Price, Consumption, and Financial Market: Evidence from Urban Household Data in China – ASCE
• [Malaysia] Unsold residential units in Malaysia at highest level for a decade – Global Property Guide
• [Spain] Mortgage Finance and Culture – IZA Institute of Labor Economics
• [Switzerland] Geneva’s ‘safe-haven’ houses look vulnerable – Financial Times
• Out of Sync Subnational Housing Markets and Macroprudential Policies – CESifo Group Munich
• [United Kingdom] UK’s Housing Market – IMF
• [United Kingdom] House prices and rents in the UK – mainly macro
• [United Kingdom] London, Residential Market Outlook, Spring 2018 – Cluttons
• [United Kingdom] A Fix to the U.K. Housing Crunch: Have More Money – Citylab

Photo by Aliis Sinisalu

From a new paper by Núria Rodríguez-Planas (IZA Institute of Labor Economics):

“Using a nationally representative sample of 12,344 immigrants from 41 different countries of ancestry living in Spain in 2007, we find that the higher the housing-loan penetration in the country of ancestry, the higher the likelihood of having a mortgage in Spain. Similarly, the higher the mortgage depth in the country of ancestry, the higher the present value of the monthly mortgage payments. Our results suggest that social norms regarding mortgage finance in the country of ancestry matter in determining immigrants’ mortgage finance in the host country. More specifically, the effect of social norms on the decision to have a mortgage (the extensive margin) and the amount of the mortgage payments (the intensive margin) is about one third and tenth the size of the effect of having a college degree on mortgage debt, respectively. Evidence of strong persistence of culture among those with longer tenure in the host country, those who immigrated as children or young adults, and second-generation immigrants suggests that vertical transmission of beliefs (from parents to children) is a plausible channel of transmission. Perhaps most importantly, we find that cultural attitudes regarding property rights are most relevant when explaining individuals’ decision to get a mortgage, but those regarding credit information matter most when explaining the amount of the mortgage debt.”

From the IMF’s latest report on Australia:

“After a housing boom over the past 6 years, Australia’s housing market imbalances and the macro-financial impact of their possible resolution have become a concern. House prices in the country’s eight capital cities have increased by 50 percent since early 2012, raising the value of Australian residential property from around 4 to over 5 times gross household disposable income and household debt to around twice the level of that income.

The housing boom has primarily been a regional boom, driven by demand shifts, and amplified by legacy imbalances and a slow supply response. Developments in Sydney and Melbourne have driven national house prices, reflecting shifts in the strength of regional economic activity and population growth since the end of the mining investment boom.

While housing markets may stabilize soon, housing affordability issues will likely remain a concern given prospects for further population growth in the eastern capitals. With such growth, the capitals need to prepare for affordable housing supply in the future, as both short-and long-term price elasticities of supply are low. In the long-term, urbanization, labor mobility, and productivity can be closely linked.

Housing-related policies have begun to address related imbalances and could usefully be complemented by tax reform. Reducing the imbalances requires a multi-pronged approach amid strong demand fundamentals. The combination of more infrastructure investment and recent zoning and planning regulatory reform should contribute to increase the supply of developable land and enable its more efficient use. Prudential policies have increased the resilience of household balance sheets and the banking sector to housing and other shocks. But household debt remains high, and continued prudential policies are important to manage the risks to domestic financial stability. Housing tax reform would support the effectiveness of the overall policy response.”

On cross-country:

• Recent house price increases and housing affordability – European Central Bank
• European Mortgage Markets at Risk from Policy Tightening – Continuum 360
• Sovereign wealth funds quadruple investment in student housing – Financial Times
• Which foreign countries will grant me citizenship if I invest? – Financial Times

On the US:

• Housing Sentiment at New Survey High on Higher Home Price Expectations – Fannie Mae
• To increase employment among housing-assisted families, don’t pull the rug out from under them – Urban Institute
• Cut HUD, Fix Housing – Cato Institute
• Construction Wages: Who Makes the Most and Where? – BuildZoom
• A closer look at the fifteen-year drop in black homeownership – Urban Institute
• Mortgage Supply and Housing Rents – The Review of Financial Studies

On other countries:

• [Canada] British Columbia to curb housing speculation, crack down on tax cheats – Reuters
• [Canada] B.C. throne speech—government vows action on high house prices, but ignores their cause – Fraser Institute
• [Canada] Speculation is best hope for housing supply, developers say – Business Vancouver
• [China] China is trying new ways of skimming housing-market froth – Economist
• [Malaysia] Unsold homes in Malaysia rise to decade high in 2017 – Reuters
• [Sweden] Reduced housing construction is subduing GDP growth – Riksbank
• [Sweden] Household Finances Exposed to Falling House Prices – Continuum Economics

Photo by Aliis Sinisalu