The Unassuming Economist

From a new paper by Monica Langella and Alan Manning:

“The UK has suffered from persistent spatial differences in unemployment rates for many decades. A low responsiveness of internal migration to unemployment is often argued to be an important cause of this problem. This paper uses UK census data to investigate how unemployment affects residential mobility using small areas as potential destinations and origins and four decades of data. It finds that both in- and out-migration are affected by local unemployment – but also that there is a very high ‘cost of distance’, so most moves are very local. We complement the study with individual longitudinal data to analyse individual heterogeneities in mobility. We show that elasticities to local unemployment are different across people with different characteristics. For instance, people who are better educated are more sensitive, the same applies to homeowners. Ethnic minorities are on average less sensitive to local unemployment rates and tend to end up in higher unemployment areas when moving.”

On cross-country:

• Housing Returns in Big and Small Cities – New York Fed
• Large investors drive up house prices in Europe’s cities, study finds. Housing is increasingly attractive asset for institutional investors due to near zero interest rates – The Guardian and link to report
• Crypto Kings Are the Real-Estate Industry’s Newest Whales. People who have made fortunes investing in digital currency, or who helped build the vast crypto industry, are the new darlings of the high-end residential property market – Wall Street Journal
• Real estate prices are rising at record speed in US, UK and Australia, as WFH and the pandemic pushed families out of big cities in 2021 – are new homes still a good investment? – South China Morning Post

On the US:    

• How the Fed’s Policy Shift Is Rippling Through the Housing Market. The central bank had been the biggest buyer of mortgage bonds, but now it is stepping back and borrowing costs are rising – Wall Street Journal
• Wonking Out: Are We in Another Housing Bubble? – New York Times
• Why, and Where, are Housing Prices Rising? – Econofact
• The Simple Reason Why So Many Can’t Afford Housing – Barron’s
• It’s Harder to Find a Home Than Love When Housing Markets Are This Hot. Bidding wars, low inventory and huge price hikes have turned homebuying into an ordeal for many house hunters over the past two years. – Bloomberg
• Would Housing Cost Less If It Were Easier to Build New Homes? Surprisingly, Not Much. A new study suggests that supply and demand are only part of a complex problem – Kellogg Insight
• New York’s ideas for zoning reform offer many paths to tackling the housing crisis – Brookings
• Newly Built Homes Make Up Record Share of U.S. Housing Supply – Bloomberg
• Rents are up 40 percent in some cities, forcing millions to find another place to live – Washington Post
• Wall Street’s $85 Billion Housing Bet Intensifies U.S. Land Boom. Investors are snapping up lots to build an empire of suburban rental homes. – Bloomberg
• What Financial Resources Have Renters Tapped During the Pandemic? – Harvard Joint Center for Housing Studies
• Report: Owning more affordable than renting in most housing markets – Washington Post
• December Rental Data: Rents Surged by 10.1% in 2021 – Realtor.com
• The Record-Breaking Rental Market – Harvard Joint Center for Housing Studies
• ‘It’s anguish, it’s pain, it’s agony’ – here’s what it’s like to shop for a home in today’s tight housing market – CNBC 
• Measuring America’s Affordability Problem: Comparing Alternative Measurements of Affordable Housing – Housing Policy Debate
• When Will Be a Good Time to Buy a House? There won’t be a perfect moment anytime soon—but that shouldn’t stop you if you’re ready. – The Atlantic
• AEI housing market indicators, January 2022 – AEI 
• Where to build in a state on fire? California housing projects face growing challenges – The Guardian
• Regulation and the Housing Affordability Crisis. Government regulations account for nearly 25% of the price of building a single-family home. – Wall Street Journal
• Why Are Residential Property Tax Rates Regressive? – Federal Reserve Bank of Philadelphia
• Q4 Homeownership Rate Reflects Slight Growth, Demographic Disparities – Realtor.com
• Exploring Climate Change in U.S. Housing Policy – Housing Policy Debate  
• The Role of 421-a during a Decade of Market Rate and Affordable Housing Development – NYU Furman Center

On China

• Beijing has shortcut to prop up real estate – Reuters
• Understanding the Resurgence of the SOEs in China: Evidence from the Real Estate Sector – NBER
• China Home Sales Slump Deepened in January in Blow to Economy – Bloomberg

On other countries:  

• [Australia] Regional house prices surge as Melburnians flood coastal and tree-change hotspots – The Sydney Morning Herald
• [Australia] Australia Home Prices Edge Up, Further Sign of Cooling Boom – Bloomberg
• [Brazil] The financialisation of housing by numbers: Brazilian real estate developers since the Lulist era – Housing Studies
• [Canada] This is what a rate hike will cost homeowners – Globe and Mail
• [Canada] Bank of Canada ‘no hike’ leaves housing fire burning, say market watchers – Reuters
• [Canada] Housing Market in a ‘Speculative Fever,’ Canada Regulator Says – Bloomberg
• [Israel] New plan aims to entice cities to construct housing with NIS 60 million bait. To resolve housing crisis, government will reward 12 high-demand municipalities with cash for each apartment approved; project could add 30,000 new units in the next three years – The Times of Israel
• [Netherlands] Sentiment in the Housing Market – University of Groningen
• [Singapore] Singapore House Prices Surge Most in Decade as Curbs Test Market – Bloomberg
• [Spain] Housing prices in Spain: convergence or decoupling? – Central Bank of Spain
• [Spain] Spain’s new “right to housing” law enshrines rent control nationwide – Quartz
• [Switzerland] Swiss banks criticise steps to cool runaway property market – Reuters
• [United Kingdom] Demand Is Surging for Flats Outside London. Price increases for apartments have been relatively modest compared to other types of property, according to Zoopla. – Bloomberg 
• [United Kingdom] The plight of the UK’s first-time buyers. The immediate pressures of the pandemic may have eased, but prospective homeowners must now contend with record prices and a looming cost of living crisis – FT
• [United Kingdom] Failure to help struggling households will cost Tories dear. Rising housing and energy costs plus higher taxes mean ministers have to come up with something – The Guardian
• [United Kingdom] UK homeowners secure £800bn windfall with house price rise. Average property values increased more than 10 per cent last year, according to new analysis – FT
• [United Kingdom] UK house prices show strongest start to year since 2005. Property price index rises by annual rate of 11.2% in January surpassing economists’ expectations – FT
• [United Kingdom] Mortgage lenders cut 10-year fixed rates ahead of Bank rate decision. Borrowers seeking long-term fixed-rate loans amid rising rates and inflation – FT

From Econofact:

“The Issue:

The price of housing has a special importance because housing is both a basic necessity and a key component of wealth. Around the start of the pandemic, some experts predicted a protracted collapse in housing prices and the housing market. For example, in April 2020 the staff at Freddie Mac projected home prices would fall by 0.5 percent over the next year. In fact, the opposite happened: The Case Shiller National Home Price Index rose by 15 percent between April 2020 and April 2021 while home sales hit a 15 year high in the calendar year 2021. This stands in stark contrast to the Great Recession when the price index fell 44 percent between May 2007 and May 2009. But one similarity across the Great Recession and the COVID downturn is the wide differences in housing price changes across different parts of the United States. What has happened to housing prices during the COVID pandemic and why?  And what are the broader economic implications of this?

The Facts:

House sales and housing construction fell at the outset of the pandemic in March 2020. The total housing inventory on the market, including newly constructed houses and those being resold, was down 10.2 percent between March 2019 and March 2020. Between February 2020 and March 2020 housing starts declined by 22.3 percent, perhaps reflecting builders’ bleak expectations for future demand. Total existing-home sales fell 8.5 percent in March 2020 compared with the prior month and tumbled a further 17.8 percent in April.”

Continue reading here.

From the IMF’s latest report on Finland:

“The increase and changing composition of household debt continues to pose borrower-side vulnerabilities. Pre-pandemic, real estate prices were not overvalued, but household debt was increasing (although still low relative to Nordic peers). Much of this new debt was in the form of housing company loans—loans that finance buying shares of a housing company that may be connected to a specific apartment instead of purchasing it directly—which mask risk exposures for households. Unsecured consumer credit was also on the rise. As the pandemic struck, the authorities relaxed loan-to-collateral (LTC) requirements for housing loans. This was accompanied by an increase in highly leveraged borrowing, and housing valuations rose throughout Finland. Housing price growth has begun to moderate somewhat in the second half of 2021.

(…)

The authorities are taking steps to mitigate vulnerabilities in household finances. Following the recent increase in highly leveraged mortgage borrowing, the authorities tightened the LTC limit to pre-pandemic levels. Parliament will discuss in the spring of 2022 a draft bill on borrower-based macroprudential tools including maturity limits for housing and housing company loans, and loan-to-value (LTV) limits for housing company loans (a debt-to-income (DTI) cap was removed from the draft bill due to strong industry and political opposition). Additionally, an electronic registry of housing company shares should be operational by end-2022, making it easier to assess risks of investing in housing companies. But implementation of the planned comprehensive credit registry has been delayed to 2024 due to technical constraints.

Staff recommend that more steps be taken to enhance the macroprudential toolkit and strengthen macrofinancial resilience. The macroprudential toolkit could be enhanced further to include: (i) a DTI cap in line with recommendations from the government-appointed working group and reflecting growing household debt vulnerabilities; and (ii) supplementing the DTI cap with a debt-service-to-income cap once the new comprehensive credit registry is operational. Features of the tax code that create incentives for investors to favor housing company loans should be addressed so as to mitigate compositional changes in household debt (the recent MOF review concluded that separating the treatment of housing company shareholders’ loans’ amortization costs from interest and other expenses could help balance incentives). In this context, data relating to consumer credit and housing companies should be improved.”

From a new report by Daniela Gabor and Sebastian Kohl:

“Over the past decades, institutional landlords – from real estate companies like the German giant Vonovia to private equity companies like Blackstone, or pension funds like ABP, the Dutch pension fund for government and education employees – have minted EUR 40bn of Berlin’s houses into assets that they rent out. This is roughly double the combined value of London’s and Amsterdam’s institutionally owned houses and it is a trend that has accelerated since the COVID19 pandemic. Europe’s residential real estate has become an attractive asset class for investors worldwide, supported by a range of government policies that are ostensibly aimed at homeowners: support for housing markets pushes up house prices and reduces affordability for citizens, whereas income support for rent-paying households ensures stable returns for investors.

In response, citizens across Europe – from Berlin to Dublin and Madrid – have mobilized to pressure governments into taking action. From rent controls to better regulation or even expropriation of institutional landlords, the political tide seems to be turning against a decades-old phenomenon known as the financialization of housing. A mega-trend across housing markets everywhere, it can be understood as (1) the disproportionate growth of housing finance relative to the underlying housing economy or (2) the turn to Housing as an Asset Class (HAC), captured by the increasing for-profit and financial orientation of actors in housing markets, and encouraged in Europe by a broad range of European-level financial legislation.

In this report, we explore the growing importance of institutional landlords such as Blackstone, focusing in particular on the mechanisms through which European legislation has accommodated their strategies to transform housing into asset classes. We use data from the private provider Preqin to map the complex financial ecosystem behind private equity landlords. We then propose a set of reforms that would de financialize housing for the public good.”