The Unassuming Economist

From a new paper by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor:

“This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but often ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.”

“This paper, perhaps for the first time, investigates the long history of asset returns for all the major categories of an economy’s investable wealth portfolio. Our investigation has confirmed many of the broad patterns that have occupied much research in economics and finance. The returns to risky assets, and risk premiums, have been high and stable over the past 150 years, and substantial diversification opportunities exist between risky asset classes, and across countries. Arguably the most surprising result of our study is that long run returns on housing and equity look remarkably similar. Yet while returns are comparable, residential real estate is less volatile on a national level, opening up new and interesting risk premium puzzles.”

On cross-country:

• Demographic Patterns of Reurbanisation and Housing in Metropolitan Regions in the US and Germany – Comparative Population Studies

On the US:

• A Shared Future: Data Democratization and Spatial Heterogeneity in the Housing Market – The Joint Center for Housing Studies
• LTV vs. LTI Constraints: When Did They Bind, and How Do They Interact? – University of Copenhagen
• Asymmetric effects of monetary policy in regional housing markets – Norges Bank
• Fannie and Freddie Continue in Limbo while Congress Looks for a Permanent Fix for the Housing Finance Market – Cato Institute
• Housing Disease and Public School Finances – NBER
• Investors Pile Into Suburban Rental Housing – Wall Street Journal

On other countries:

• [Singapore] Singapore authorities’ housing market warning may fall on deaf ears – Reuters

Photo by Aliis Sinisalu

The IMF’s latest report on Bolivia says that:

“The FSL [Financial Services Law] has resulted in rapid credit growth directed to specific sectors and social housing (…) Housing lending should be closely monitored and the authorities should finalize and publish a housing price index. (…) More market-oriented mechanisms to improve financial access should be considered and the housing loan portfolio monitored closely.”

On cross-country:

• Institutional settings and urban sprawl: evidence from Europe – Journal of Housing Economics
• Bubbles and crashes: A vicious cycle of self- fulfilling investor sentiment – London School of Economics
• Houses, up and down: An international comparison of house price movement – Federal Reserve Bank of St. Louis
• Integrating national policies to deliver compact, connected cities: an overview of transport and housing – Coalition for Urban Transitions
• Space matters: Understanding the real effects of macroeconomic variations in cross-country housing price movements – Economic Letters
• The Crisis in Affordable Housing Is a Problem for Cities Everywhere – World Resources Institute

On the US:

• The Long View of Housing Wealth Effects – Columbia University
• Why Housing Supply Matters – Oregon Office of Economic Analysis
• Reactions to the tax plan: Curbed, New York Times, Reuters, Seattle Times, Seeking Alpha
• Owned Now Rented Later? Housing Stock Transitions and Market Dynamics – Syracuse University
• BuildZoom Research: A Year in Review – BuildZoom
• Measuring population estimates of housing insecurity in the United States: A comprehensive approach – Equitable Growth
• What “affordable housing” really means – Vox
• What Would it Take to Make Neighborhoods More Equitable and Integrated? – Harvard Joint Center for Housing Studies
• The Libertarian: How Housing Got So Expensive – Hoover Institution
• A Decline in Multifamily Housing Permits Offsets a Gain in Single-Family Permits – American Institute for Economic Research
• The Best Housing Market in a Decade, Now What? – Freddie Mac

On other countries:

• [Australia] Does Population Growth Cause Rising Dwelling Prices? – LF Economics
• [Canada] Non-residents focus on new condos in Vancouver, Toronto – Reuters
• [China] Smaller cities drive China’s new home prices in Nov, defying curbs – Reuters
• [Czech Republic] Czech central bank acts to cool buoyant property market – Financial Times
• [Germany] Germany a hot destination for overseas buyers – Global Property Guide
• [Peru] Rapid Rural-to-Urban Migration to Lima: A Need for a Sustainable Housing Reform – Lehigh University
• [Spain] A Decade After Bubble, Spanish Real Estate a Hot Buy Again – Bloomberg
• [United Arab Emirates] Mortgages: Catch me if you can – Reidin
• [United Arab Emirates] Dubai / Abu Dhabi Residential Property Price Indices: November 2017 Results – Reidin
• [United Kingdom] Is owning a house cheaper than renting it? – Medium

Photo by Aliis Sinisalu

The IMF’s latest report on Cyprus says that:

“After falling sharply, property prices are now rising marginally while transactions are recovering, especially in the luxury segment. Prices declined 30 percent (residential) and 50 percent (retail) relative to the 2008–09 peak, stabilized in 2015, and rose moderately since mid-2016. Price-to-rent and price-to-income ratios have returned to historical levels.6 With at least two thirds of loans collateralized with real estate, moderate price growth will increase banks’ NPL cover and borrowers’ net worth. However, prices have also benefited from the limited number of foreclosures, while turnover is more active in the luxury market owing in part to the CbI scheme.

Increased construction activity has supported the recovery, and associated risks appear manageable. Tax and other incentives targeting the property sector helped to stabilize prices and bring jobs and economic growth. The fact that large luxury construction projects are mainly foreign financed or financed through pre-selling helps to limit financial stability risks. The CbI scheme is a general investment scheme, although real estate is the major beneficiary. Regulatory improvements to the CbI—with stricter controls on intermediaries (including real estate agents and lawyers)—are being considered, but there are no plans to amend the eligibility criteria. Some construction projects will generate future revenue streams (e.g., the casino and marinas) that will underpin their value. However, resale prices of residential units could be affected if too many are built, which could spread to prices of other properties. While developers have not relied on domestic bank financing so far, caution is needed to prevent a recurrence of such bank exposure, and tightening of lending standards is warranted for developers and in the event foreign demand spills over to the housing market for the general population. To comply with EU requirements, VAT will be imposed on transactions of buildable land, thereby partly offsetting—from a tax-incidence perspective—the previous elimination of the IPT and reduction in property transfer fees.”