The Unassuming Economist

On cross-country:

• Housing affordability and responses during times of stress: A preliminary look during the COVID-19 pandemic – Contemporary Economic Policy

On the US:    

• Something Has to Give in the Housing Market. Or Does It? There appears to be no quick reprieve coming for rising prices: “It’s not a bubble, it really is about the fundamentals.” – New York Times
• A growing share of Americans say affordable housing is a major problem where they live – Pew Research Center
• Housing-Market Risks in U.S. Are Clustered Around NYC, Chicago. Attom data rank areas by affordability, level of foreclosures. Outside of California, the West is the least fragile market – Bloomberg 
• Available Homes Shrink More Than 30% in Hottest Housing Markets. It would take less than a week to sell all the inventory in Seattle, and about 9 days for San Jose and Denver at current prices, according to Redfin. – Bloomberg
• The YIMBYs are starting to win a few. Slowly but surely, progressives are realizing that they need to build, build, build – Noahpinion
• Austin’s Mayor Seeks $500 Million Bond to Help Ease Housing Crunch – Bloomberg
• Homes Above $800,000 Drive Bidding Wars in the U.S. Housing Market. Nearly two-thirds of pricey homes had competition in December, while supply remains tight due to low mortgage rates and booming demand. – Bloomberg
• Short term rentals are an opportunity for some, but are impacting affordable housing – NPR
• Blackstone’s new real estate play: the rent-to-buy market. Home Partners believes it has created an alternative path to home ownership. But is it really more like another corporate landlord? – FT
• Cincinnati Agency Buys Nearly 200 Rental Homes, Thwarting Private Investors. City plans to upgrade rental homes and sell to tenants in affordable-housing effort – Wall Street Journal
• A Progressive Real Estate Firm Faces Accusations of Discrimination. Redfin has staked its reputation on making a racist industry more equitable. Critics say it has been denying services to Black homebuyers and sellers. – Bloomberg 
• Mortgage denial rates by race in 2020 – Axios
• Study: 20% of Black mortgage applicants in Ga. rejected – Axios
• Black Mortgage Applicants Denied 84% More Often than White Borrowers – Zillow 
• Rising mortgage rates could slow house price surge – Axios
• To Senator Toomey: The Process of Exiting GSE Conservatorship Is Not So Simple – Harvard Joint Center for Housing Studies
• New State Rule Would Force Suburbs to Legalize Thousands of New Apartments Near T Stops – StreetsblogMASS
• Fraud and the financial crisis – AEA
• Housing finance: Insights on the new normal – American Enterprise Institute
• Good news for buyers? New-home construction activity increases, amid a surge in building permits. U.S. home builders face a growing backlog of construction projects they haven’t started work on, which should continue to pump supply into the housing market in 2022 – MarketWatch
• Multi-family housing boosts U.S. homebuilding; supply constraints seen unrelenting – Reuters
• Boom in Home Remodeling May Peak in 2022 – Harvard Joint Center for Housing Studies

On China

• Slowdown in Chinese town highlights potential pitfalls of property reforms. Homeowners’ struggles demonstrate challenge of cooling sector without damaging wider economy – FT
• China Considers Major Step to Ease Developer Cash Crunch. Regulators mull policy package to ease crisis: person familiar. Government is fine-tuning industry crackdown as economy slows – Bloomberg
• China’s Home Market Slump Persists on All Fronts, Hurting Growth – Bloomberg
• China’s GDP growth slows as Covid restrictions and property woes hit demand. Central bank cuts lending rate as economy expands 4% year on year in fourth quarter – FT
• China’s Economy Is Slowing, a Worrying Sign for the World. Economic output climbed 4 percent in the last quarter of 2021, slowing from the previous quarter. Growth has faltered as home buyers and consumers become cautious. – New York Times
• China’s Spreading Property Debt Crisis Pressures Xi to Ease – Bloomberg
• Xi Reshapes China Property Market Paving Way for State Dominance. Officials seeking to quash speculation, limit financial risk. State-owned developers seen taking over the key industry – Bloomberg
• China Experts Map Out Endgame for Xi’s Revamped Property Sector. State-owned firms seen taking control of real estate market. Transition will be ‘long and painful,’ Bocom’s Hao Hong says – Bloomberg
• How Too Many Boys Skew China’s Economy. The government’s fight to control housing prices and insulate the economy is bound up with some very fundamental human impulses—and decisions made decades ago – Wall Street Journal

On other countries:  

• [Canada] Housing demand in Canada: A novel approach to classifying mortgaged homebuyers – Bank of Canada
• [Canada] We don’t expect an increase in interest rates to have a huge impact on housing supply: CHBA CEO – Bloomberg
• [Canada] House hunters in Canada face tightest market on record. There are so few homes for sale in Canada that people are starting to call it a housing crisis. – Al Jazeera
• [Czech Republic] EU’s Hottest Property Market Fuels Aggressive Czech Rate Hikes – Bloomberg
• [France] Working from home and corporate real estate – VoxEU
• [Germany] Bundesbank warns German lenders of complacency as house prices soar. Credit risks have been ‘underestimated’, vice-president Claudia Buch tells FT – FT
• [Ireland] Rising rents and surging prices trigger ‘collapse’ in home ownership. Housing in Ireland is ‘severely unaffordable’, report by Parliamentary Budget Office says – The Irish Times
• [Italy] The Agglomeration of Urban Amenities: Evidence from Milan Restaurants – NBER
• [New Zealand] New Zealand Home Price Increases Show Signs of Moderating – Market Watch
• [New Zealand] New Zealand’s house prices skyrocketing – Global Property Guide
• [Slovak Republic] Slovak Republic’s house price growth accelerating – Global Property Guide
• [United Kingdom] UK mortgage demand cools amid economic concerns. Would-be homebuyers confound forecasters and turn cautious, BoE survey – FT
• [United Kingdom] The big idea: could fixing housing fix everything else, too? From inequality to pollution, Britain’s housing crisis sits at the root of a surprising range of problems – The Guardian
• [United Kingdom] Mortgage values fall from nutty 2020 high but new homebuyers are still feeling the pain. Surge in mortgages during pandemic suggests house prices will continue to grow for first half of 2022 – at least – The Guardian
• [United Kingdom] UK house prices rise annual 10.0% in November – Reuters
• [South Africa] Rate Hikes Unlikely to Weigh on South Africa Home Buying in 2022 – Bloomberg
• [Taiwan] Taiwan Central Bank Chief Repeats Stance on Rates-Housing Link – Bloomberg 

From a new paper by Stephen Malpezzi:

“The global SARS-CoV-2/COVID-19 Pandemic has disrupted public health, economies, and housing markets since early 2020. The shock has called forth a number of policy responses, such as moratoria on foreclosures and evictions, attempts to regulate rents and prices, and a range of subsidies on both supply and demand sides. This paper reviews the state of housing markets and discusses the expected efficacy of alternative policy measures taken or contemplated. Recognizing the provisional nature of any paper written during a large and durable ongoing shock, suggestions for additional research are provided.”

From a paper by John M. Griffin:

“From the very start of the 2008 housing and financial crisis, close observers suspected widespread fraud lay behind the rapid meltdown in the US mortgage market. But even a decade after the fact, there was little consensus among economists as to whether that was the root cause.

In a paper in the Journal of Economic Literature, author John M. Griffin synthesizes the broad array of literature on the role of residential mortgage-backed securities (RMBS) securitization and finds that conflicts of interest among banks, ratings agencies, and other key players were a key driving force behind the financial crisis.

Griffin says that the process of creating and selling complex financial assets based on home loans was closely linked to the housing bubble—and shot through with malfeasance. 

In the run-up to the crisis, underwriters facilitated wide-scale fraud by knowingly misreporting key loan characteristics, credit rating agencies catered to investment banks by inflating their ratings on both mortgage-backed securities and collateralized debt obligations, originators engaged in mortgage fraud to increase market share, and real estate appraisers inflated their appraisals in order to gain business. 

As credit was extended to those who could not afford loans, house prices boomed and subsequently crashed when homeowners started defaulting. However, this supply of fraudulent credit was not uniform across US zip codes.

Griffin illustrated variation in mortgage fraud using zip code data from California, which had the greatest number of mortgage originations during the period. Figure 1 from his paper shows that the state’s housing prices decreased as loans from dubious originators increased.

The y-axis is the percent change in the Federal Housing Finance Agency house price index (HPI) per zip code from 2007 to 2010, and the x-axis is the fraction of misreported loans per zip code from 2003 to 2007. The size of each point represents the number of zip codes.

The chart shows a strong negative relationship between misreporting and the home price bust. California zip codes with more than 15 percent fraudulent origination experienced home price decreases of 44.6 percent on average, whereas zip codes with less than 3 percent fraudulent originators only experienced 5.4 percent price decreases. 

While other factors such as excess credit and speculation could be drivers, Griffin says that numerous studies since the crisis point toward fraud as a central explanation.”

From a VoxEU post by Antonin Bergeaud, Jean Benoit Eymeoud, Thomas Garcia, and Dorian Henricot:

“As employers and employees established ways of working remotely to limit physical interaction during outbreaks of Covid-19, teleworking became increasingly routine. This column examines how corporate real-estate market participants adjusted to the growth of teleworking in France, and finds that it has already made a noticeable difference in office markets. In départements more exposed to telework, the pandemic prompted higher vacancy rates, less construction, and lower prices. Forward-looking indicators suggest that market participants believe the shift to teleworking will endure.

One of the primary hysteresis of the Covid-19 pandemic on the organisation of work is probably the dramatic take-off of telework. Forced by circumstances, employers and employees had to implement new ways of working remotely to limit physical interactions during the acute stages of the outbreak. This experience prompted companies to invest more in computer equipment and to adapt their management practices. Teleworking has thus already become a standard practice for many workers and is likely to endure (Barrero et al. 2021). 

The polarisation of economic activity has led to a significant increase in real estate prices in dynamic areas. Office real estate is no exception, and the cost of corporate real estate is increasingly weighing on firms’ bottom lines (Bergeaud and Ray 2020). Companies taking advantage of teleworking to reduce office space demand could induce a structural downturn in the corporate real estate market. In the US, Bloom and Ramani (2021) show that the pandemic and the rise of telework is already having a substantial impact on the spatial dynamics of city real estate, producing a ‘doughnut effect’. In a recent study (Bergeaud et al. 2021), we look at the first signs of such an adjustment in France. 

Local heterogeneity of the propensity to telework

We first define an index that measures exposure to the deployment of telework at the county (département) level. The index is the product of two components. First, we use the indicator constructed by Dingel and Neiman (2020) at the occupation level and apply it to the local composition of labour in France. We interpret it as a maximum potential for teleworking. However, this upper bound is unlikely to be reached in practice (Bartik et al. 2020). Also, we introduce frictions (quality of the internet infrastructure, average commuting time, number of families with children) that prevent the full use of the telework potential. We extract a principal component from these frictions and combine it with the maximum potential to construct a single index that measures the actual propensity of teleworking by county.”

Continue reading here.

From a NBER paper by Marco Leonardi & Enrico Moretti:

“In many cities, restaurants and retail establishments are spatially concentrated. Economists have long recognized the presence of demand externalities that arise from spatial agglomeration as a possible explanation, but empirically identifying this type of spillovers has proven difficult. We test for the presence of agglomeration spillovers in Milan’s restaurant sector using the abolition of a unique regulation that until recently restricted where new restaurants could locate. Before 2005, Milan mandated a minimum distance between restaurants that kept the spatial distribution of restaurants artificially uniform. As a consequence, restaurants were evenly distributed across neighborhoods. The regulation was abolished in 2005 by a nationwide reform that allowed new restaurants to locate anywhere in the city. Using administrative data on the universe of restaurants and retail establishments in Milan between 2000 and 2012, we study how the spatial distribution of restaurants changed after the reform. Consistent with the existence of significant agglomeration externalities, we find that after 2005, the geographical concentration of restaurants increased sharply. By 2012, 7 years after the liberalization of restaurant entry, the city’s restaurants had agglomerated in some neighborhoods and deserted others. By contrast, not much happened to the spatial concentration of retail establishments or even retail establishments that sell food, which were never covered by the minimum distance regulations and therefore were not directly affected by its reform. We also find that in neighborhoods where the number of restaurants grew the most after the reform, restaurants reacted to the increased competition by becoming more differentiated based on price, quality and type of cuisine.”