The Unassuming Economist

From a paper by Edward L. Glaeser, Leonardo D’Amico, Joseph Gyourko, William Kerr, and Giacomo A.M. Ponzetto:

“We document a Kuznets curve for construction productivity in 20th-century America. Homes built per construction worker remained stagnant between 1900 and 1940, boomed after World War II, and then plummeted after 1970. The productivity boom from 1940 to 1970 shows that nothing makes technological progress inherently impossible in construction. What stopped it? We present a model in which local land-use controls limit the size of building projects. This constraint reduces the equilibrium size of construction companies, reducing both scale economies and incentives to invest in innovation. Our model shows that, in a competitive industry, such inefficient reductions in firm size and technology investment are a distinctive consequence of restrictive project regulation, while classic regulatory barriers to entry increase firm size. The model is consistent with an extensive series of key facts about the nature of the construction sector. The post-1970 productivity decline coincides with increases in our best proxies for land-use regulation. The size of development projects is small today and has declined over time. The size of construction firms is also quite small, especially relative to other goods-producing firms, and smaller builders are less productive. Areas with stricter land use regulation have particularly small and unproductive construction establishments. Patenting activity in construction stagnated and diverged from other sectors. A back-of-the-envelope calculation indicates that, if half of the observed link between establishment size and productivity is causal, America’s residential construction firms would be approximately 60 percent more productive if their size distribution matched that of manufacturing.”

Working papers and conferences:

• Are Big Cities Important for Economic Growth? – NBER
• Working from home: Effects on housing demand and inequality – European Central Bank
• Rising Interest Rates, Mortgage Rate Lock, and House Price Fluctuations – SSRN
• Modelling and forecasting House Prices: The case of the Greek economy – SSRN
• European Energy Crisis: Did Electricity Prices Shock Real Estate Markets? – SSRN
• Spatial Dispersion in Returns to Rental Housing: A Decomposition of Local Rent-Price Ratios – SSRN
• Monetary Policy, Property Prices and Rents: Evidence from Local Housing Markets – SSRN
• Housing Wealth Across Countries: The Role of Expectations, Institutions and Preferences – CEPR
• 12 books about housing, cities, and more to read this spring. New books by Ezra Klein, Derek Thompson, Russell Shorto, and more – The New Urban Order

On the US—developments on house prices, rent, permits and mortgage:    

• US Mortgage Rates Approach 7% in Ominous Sign for Housing Market. MBA’s measure of rate on 30-year mortgage rose to 6.97%. Home-purchase applications fell almost 7% during holiday week – Bloomberg
• US 30-Year Mortgage Rate Just Shy of 7% Weighs on Home Purchases. Applications index for home purchases lowest since February. Expectations for fewer Fed rate cuts keep financing costs high – Bloomberg
• Here’s where mortgage rates could be headed in 2025 – The Hill
• The ‘Hidden Force’ That Can Bring Mortgage Rates Down. How home buyers could get a little break even if yields stay high – Wall Street Journal 
• Mortgage Applications Increase Marginally in December – NAHB
• December 2024 Monthly Housing Market Trends Report – Realtor.com
• Home Prices Continue to Slow in October – NAHB
• Inflation Adjusted House Prices 1.3% Below 2022 Peak. Price-to-rent index is 8.1% below 2022 peak – Calculated Risk 
• After recent successes, Twin Cities region’s housing-supply progress slips. With fresh data from 2023, the Regional Housing Affordability Dashboard monitors trends in the Twin Cities regional housing market – Minneapolis Fed
• 1st Look at Local Housing Markets in December – Calculated Risk
• New Listings Rise 8%, Giving the New Year’s Buyers More Homes to Choose From – Redfin
• Moody’s: Apartment Vacancy Rate Increased in Q4; Office Vacancy Rate at Record High – Calculated Risk
• Pandemic-Era Demand Squeezed Housing Inventories – San Francisco Fed
• Asking Rents Mostly Unchanged Year-over-year – Calculated Risk
• Morgan Stanley: Rising inventory to push down U.S. home prices in 2025. Among the 26 home price forecast models tracked by ResiClub, Morgan Stanley is the most bearish on 2025. – Fast Company

On the US—other developments:    

• What’s Ahead for Real Estate in 2025? Wharton’s Susan Wachter is cautiously optimistic for the year ahead, noting that reining in inflation is the key to reviving real estate markets. – Wharton
• Housing Sentiment Finishes 2024 Higher Despite December Dip. Mortgage Rate Optimism Primary Driver of Year-over-Year Improvement – Fannie Mae
• Fannie and Freddie Stocks Surge on Hope for End to U.S. Control. It Won’t Be Easy. – Barron’s
• US homebuilder shares slide on fears of higher rates and Trump tariffs. Threat of rising costs brings post-pandemic rally to a halt – FT
• The US Government Is Sitting on a Possible Solution to the Housing Crisis. The idea of opening up public lands to development enjoys bipartisan support and cuts through red tape. – Bloomberg
• Trump’s housing market conundrum – CNN
• Will Homeowners Finally Sell in 2025? Here’s What the Experts Say, Amid a Glimmer of Hope – Realtor.com
• Questioning the Housing Crisis: A Different Approach to Estimating Housing Availability – Cato Institute
• New Projections Anticipate a Slowdown in Household Growth and Housing Demand – Harvard Joint Center for Housing Studies
• Redfin Reports Housing Affordability Didn’t Worsen in 2024—The First Time in Four Years That Has Happened – Redfin
• Construction Labor Market Tightens A Little – NAHB
• Home Purchase Sentiment Drops in December amid Rising Mortgage Rates – Realtor.com
• NYC Condo Owners May Bear Costs of Landmark Green Building Law. As deadlines approach for Local Law 97, residents face fee and rent increases. Lawmakers are considering tax exemptions to ease the burden. – Bloomberg

On Australia and New Zealand:

• [Australia] ‘Six months behind’: What property prices will do in 2025 – The Sydney Morning Herald
• [Australia] House prices tipped to rise 3pc in 2025 – Financial Review
• [Australia] Australian Building Approvals Fall, Denting Hopes of Housing Supply Recovery. The total number of dwellings approved fell 3.6% in November – Wall Street Journal
• [Australia] Australia’s housing market ‘buckling’ under widening gap between income and home values, report finds. Housing prices fell by 0.1% in December but dip likely to be ‘shallow and short-lived’, according to CoreLogic – The Guardian
• [Australia] Australia Housing Downturn Likely ‘Short-Lived,’ CoreLogic Says. CoreLogic’s index fell in December after 21 months of growth. Hard to see ‘material growth’ returning to housing values – Bloomberg 
• [New Zealand] How much house prices dropped in 2024 – RNZ
• [New Zealand] New Zealand House Prices Tipped to Show Modest Gains in 2025 – Bloomberg

On other countries:  

• [Canada] Home Sales in Toronto Decrease for First Time in Five Months – Bloomberg
• [Canada] Using new loan data to better understand mortgage holders – Bank of Canada
• [Canada] Canada’s housing markets see a mixed finish to 2024 – RBC
• [Hong Kong] Hong Kong’s attempt to tackle ‘shoebox housing’ runs into trouble – The Guardian
• [Ireland] Revealed: How much Irish house prices are expected to rise by this year despite warnings of ‘painful correction’ in market – Irish Independent
• [Netherlands] Dutch housing construction to pick up again in 2025 – ING
• [United Kingdom] Meet the young families stuck in their starter homes thanks to the UK housing crisis. – The Guardian
• [United Kingdom] Mortgage Brokers Made Rate Hikes More Painful, Says Bank of England. Homeowners tempted into shorter deals, according to research. This left them more exposed when interest rates surged – Bloomberg
• [United Kingdom] UK house prices dip for first time since March, Halifax says – Reuters
• [United Kingdom] Stamp duty changes ‘will motivate first-time buyers’ – BBC

From a paper by Prince Mensah Osei, Johnny Lo, Ute Mueller, Steven Richardson, and Ebenezer Afrifa-Yamoah:

“Time-frequency domain analysis of housing prices can provide insights into significant periodic patterns in the pricing dynamics for modelling and forecasting purposes. This study applied wavelet and information entropy analyses to examine the periodic patterns and evolution of housing prices in Australia’s eight capital cities from 1980 to 2023, using quarterly median house pricing data. Our findings revealed consistent patterns of higher variability in housing prices at high frequencies across all cities, with Melbourne exhibiting the highest variability. This indicates that short-term price fluctuations were higher than long-term changes. Perth and Brisbane demonstrated notable cyclical patterns with recurring periods of growth and decline. Coherence analyses revealed dynamic lead–lag relationships, both positive and negative, between housing prices of various cities, suggesting interconnectedness but not always synchronisation. Some cities’ housing prices dominated the information sharing, indicating varying degrees of influence within the national market. These findings highlight the complex, dynamic interdependencies among Australia’s major city housing markets, providing valuable insights for policymakers, investors, and stakeholders in economic forecasting, policy development and strategic planning within these markets.”

From a paper by Rasmus Bisgaard Larsen, Søren Hove Ravn, and Emiliano Santoro:

“We present aggregate and regional evidence showing that U.S. house prices increase persistently in response to positive shocks to fiscal spending. In sharp contrast to this, house prices decline in conventional dynamic general equilibrium models, where shocks that have short-lived effects on the shadow value of housing inevitably generate negative comovement between households’ marginal utility of consumption and house prices (see Barsky et al., 2007). In response to an increase in government spending, the negative wealth effect exerted by the simultaneous increase in the present-value tax burden increases the marginal utility of consumption. Even overcoming the consumption crowding-out puzzle is not sufficient to resolve this shortcoming. To tackle this problem, we extend an otherwise standard model embedding a lender-borrower relationship with alternative—yet, potentially complementary—propagation channels that leverage the expansion in total factor productivity stemming from a positive shock to fiscal spending, so as to contrast the negative wealth effect of higher taxes. This class of models succeeds in generating a persistent expansion in house prices, although the propagation required to match the data is stronger—in some cases significantly so—than what is typically found in the literature. The positive interplay between house prices and productivity finds support in both aggregate and regional data.”

From a paper by Remi Jedwab, Elena Ianchovichina, and Federico Haslop:

“Census data for 7000 cities – three fourth of the world’s urban population – reveal that cities of the same population size in countries with similar development levels differ substantially in terms of their employment composition, especially in the developing world. Using these data, we classify cities into production cities with high employment shares of urban tradables (e.g., manufacturing or business services), consumption cities with high employment shares of urban non-tradables (e.g., retail and personal services), or neutral cities with a balanced mix of urban tradables and non-tradables. After establishing stylized facts regarding the sectoral distribution of employment in our global sample of cities, we discuss the various paths by which developing nations may urbanize through production cities – via industrialization or tradable services – or consumption cities – via resource exports, agricultural exports, or deindustrialization. Country and city-level data corroborate our hypotheses. Results on the construction of very tall buildings also provide suggestive evidence on the relationship between resource exports and consumption cities. Importantly, consumption cities seem to present lower growth opportunities than production cities, diminishing the role of cities as “engines of growth.” Understanding how sectoral structure mediates the urbanization-growth relationship and how consumption cities become production cites is thus highly relevant for policy.”