The Unassuming Economist

On cross-country:

• Where are the world’s most expensive cities? – The Economist

On the US:

• America’s inequitable housing system is completely unprepared for coronavirus – Brookings
• Information From Past Pandemics, And What We Can Learn: A Literature Review – Zillow
• Buying a Home During a Pandemic – New York Times
• Coronavirus, Oil Prices Send Shockwaves Through Houston Real Estate – Wall Street Journal
• How Coronavirus Has Affected Real Estate – New York Times
• ‘Golden Gates’ Review: Build It Here, Build It Now – Wall Street Journal
• Home Value Growth Accelerated in February, Ending a 21-Month Slowdown (February 2020 Market Report) – Zillow
• S housing market shows strength before coronavirus outbreak – Reuters
• Federal ‘Fair Housing’ Policy Set for a Major Overhaul – Reason

On other countries:  

• [Australia] How will coronavirus affect Australia’s real estate market and house prices? – Guardian
• [Canada] Canada’s house price declines – Global Property Guide
• [China] China’s property sector slump in Jan-Feb on coronavirus impact hurts rebar prices – S&P Global
• [Hong Kong] RICS-SPACIOUS 千居 Hong Kong Residential Market Survey – RICS-Spacious
• [Ireland] Housing market in Ireland quickly slows down – Global Property Guide
• [Italy] Housing supply elasticity and growth: evidence from Italian cities – Central Bank of Italy
• [Norway] Norway’s housing market has hardly moved – Global Property Guide
• [Singapore] Singapore’s house price growth slowing sharply – Global Property Guide
• [Sweden] House prices in Sweden on the rise again – Global Property Guide
• [Taiwan] Taiwan’s housing market continues to improve – Global Property Guide
• [United Kingdom] 7m properties dragged into higher stamp duty band – Financial Times

On cross-country:

• Europe’s great house price boom continues, but sharp slowdown in North America, the Middle East and most of Asia-Pacific – Global Property Guide
• World’s priciest homes: How Australian house prices compare to the rest of the world – RealEstate

On the US:

• Urbanization and its Discontents – NBER
• The housing affordability crisis is a reality: Lawmakers need to act, but responsibly – The Hill
• Real Estate and the Wealth of a Nation – American Institute for Economic Research
• Housing Finance At A Glance: A Monthly Chartbook, February 2020 – Urban Institute
• However You Measure It, Parents of White College Graduates Are about 10 Times Wealthier Than Their Black Counterparts – Urban Institute
• The Termination of LIBOR An Update on Implications for the Mortgage Market – Urban Institute
• Institutional Investors Brought Higher Home Prices and Lower Vacancies to the Housing Recovery – Urban Institute
• Five Facts about Our Housing Supply Explain High Rents and Home Prices – Urban Institute
• Is housing a better investment than education? – Quartz
• Plunging Mortgage Rates Might Not End U.S. Housing Doldrums – Wall Street Journal
• Coronavirus Looms Over Crucial Spring Season for Housing Market – Wall Street Journal

On other countries:

• [Germany] Capital Flows, Real Estate, and Local Cycles: Evidence from German Cities, Banks, and Firms – NBER
• [Hong Kong] Hong Kong’s housing market remains resilient – Global Property Guide
• [Lithuania] Lithuania’s house price continues to rise – Global Property Guide
• [Mexico] Mexico’s housing market remains robust – Global Property Guide
• [Romania] Romania’s housing market continues to grow – Global Property Guide
• [Russia] Russia’s housing market getting better – Global Property Guide
• [Thailand] Thailand’s house prices continue to rise – Global Property Guide

On cross-country:

• Decoding the New Housing Reality – Housing Europe

On the US:

• The Great Wall Street Housing Grab – New York Times
• How the Democratic Candidates Would Tackle the Housing Crisis – New York Times
• How Bloomberg, Sanders and Warren Responded to a Survey on Housing – New York Times
• Evidence Shows Military Service Reduces the Racial Homeownership Gap – Urban Institute
• Why Do Black College Graduates Have a Lower Homeownership Rate Than White People Who Dropped Out of High School? – Urban Institute
• Reverse Mortgage Use Differs by Race and Ethnicity. Here’s Why It Matters – Urban Institute
• Is the Sudden Increase in Black Homeownership Too Good to Be True? – Urban Institute
• Breaking Down the Black-White Homeownership Gap – Urban Institute
• Vacant “Zombie” Foreclosures Increase to 3.1 Percent Nationwide – ATTOM
• For Those Living in Public Housing, It’s a Long Way to Work – Citylab
• Housing Discrimination and Pollution Exposures in the United States – NBER
• Does Information About Climate Risk Affect Property Values? – NBER
• Vote Warren for a Pro-Housing President – Harvard Political Review
• Digging Deeper into the Story: The Widespread Implications of the Growth in High Income Renters on Low- and Middle-Income Renter Households – Harvard Joint Center for Housing Studies

On other countries:

• [Chile] Property prices in Chile continue to rise – Global Property Guide
• [Ireland] Ireland’s central banker warns on homes spending spree – Financial Times
• [Slovak Republic] Slovak Republic’s house price rising continuously – Global Property Guide

From the IMF’s latest report on Australia:

“The fast increase in housing prices since mid-2019 has partly undone earlier price declines. As such, despite lower mortgage rates, there has only been a limited improvement in housing affordability for many households since the peak in housing prices in 2017.

Staff’s Views

Housing supply reforms are critical for restoring affordability. More efficient long-term planning, zoning, and local government reforms that promote housing supply growth, along with a focus on infrastructure development, remain critical to meet the needs of a growing urban population. Initiatives such as “City and Regional Deals” that aim to integrate transport, housing and land use polices to create the opportunity for coordinated action to maximize the value of infrastructure investment, should help meet growing demand for housing.

Broader tax reforms could reinforce the effectiveness of supply-side measures. Transitioning from a housing transfer stamp duty to a general land tax would improve efficiency by easing entry into the housing market and promoting labor mobility, while providing a more stable revenue source for the states. Such reforms could be complemented by reducing structural incentives for leveraged investment by households, including limiting negative gearing in residential real estate. Nonetheless, major changes affecting investment decisions and underlying demand for housing should be gradual, and such reforms should not be undertaken in isolation. In addition, housing policy measures discriminating against nonresidential buyers, such as state-level foreign purchaser duty surcharges on residential property, should be replaced by alternative, non-discriminatory measures, such as a general surcharge on vacant property or surcharges on all investor-owned housing transactions.

Authorities’ Views

The authorities saw potential risks linked to a possible reemergence of rapid housing price growth. With population growth projected to remain strong, the ongoing weakness in building approvals following the past decline in housing prices and tighter credit supply for developers could result in a shortage of new housing and renewed rapid housing price growth, with the risk that this would, in turn, lead to stronger growth in household debt.

The authorities stressed that they would continue to facilitate housing supply reforms and other measures to improve housing affordability. They highlighted that the Commonwealth government provides annual housing-related funding such as rental subsidy for individuals through the Commonwealth Rent Assistance (CRA), funding to states and territories to improve Australians’ access to affordable housing through the National Housing and Homelessness Agreement (NHHA), and the First Home Loan Deposit Scheme to provide loan guarantee to lenders for first-time home buyers. Housing has also been a priority in the City and Regional Deals. The authorities thought that tax policy was not the right tool to address potential speculative behavior in housing markets, as negative gearing applies across investments and investments in residential housing are relatively highly taxed, and that macroprudential policy should instead be employed as needed.”

From the IMF’s latest report on Malaysia:

“Over the past decade, real house prices rose faster than income. House prices in Malaysia increased faster than in many regional comparators in the wake of the GFC (text chart). On average real house prices rose by 6 percent in Malaysia annually since 2010, compared with below one percent in regional comparators. At the same time, per capita income in Malaysia grew by around 4 percent annually leading to a deterioration in affordability over this time period (text chart).

From 2015 onwards, house price growth has moderated from high levels. The average annual nominal house price increase during 2010-14 was 10 percent, but it has declined to an average of 5.5 percent during 2015-19. Most recently, preliminary data indicate that house prices increased by 0.4 percent in 2019Q3 (year-on-year) (text chart). The moderation in house price growth is broad-based across regions, including Kuala Lumpur (text chart).

Residential housing supply has responded to higher prices with a lag. Supply factors are important determinants of housing market dynamics, especially considering that residential housing has long planning-to-production lags which can produce temporary supply and demand mismatches. In the aftermath of the GFC, residential property launches plummeted from a peak of nearly 350,000 units before the GFC to a lowest point of 173,000 in 2012 (text chart). The increase in house prices during 2010-15 triggered a strong supply response from 2015 onwards and currently housing starts are well above 300,000.

The strong supply response has led to overproduction in some segments of the market. Affordable housing in Malaysia is usually considered to be below RM300,000.2 Unsold properties in the upper segment (above RM500,000) has increased sharply in 2018-19, particularly in the high-rise apartment segments, whereas recent housing demand has been strong in the lower segments of the market as evidenced by the lower inventory of unsold housing units; unsold units above RM 1 million remain at a high level.

In contrast, there is an undersupply of housing at affordable levels, especially in urban areas. The deterioration of housing affordability can be illustrated in the house price-to-income ratio, which has increased from 4.1 in 2002 to 5.0 in 2016 (see Khazanah Research Institute, 2019). In addition, urban migration has increased housing demand in urban areas. The World Bank (2019) finds that households in Kuala Lumpur and Petaling District with monthly incomes below RM5,000 experience severe unaffordability, and can experience difficulty finding finance given low and often volatile income. Households with incomes from RM6,000-10,000 have moderate difficulty in purchasing a home, while those with incomes above RM10,000 find ample supply within their capacity-to-pay.

House prices are estimated to be moderately overvalued. Using an econometric model with fundamental determinants of house prices such as affordability, per capita income, interest rates, credit growth, working age population and equity share prices, suggest that real house prices remain about 15 percent above what fundamental macroeconomic variables would indicate (Box 1), although the overvaluation has slightly narrowed in recent years as house price increases have moderated.

Along with the increase in house prices, household debt has risen sharply over the past decade. Household debt increased from 60.4 percent of GDP in 2008 to 86.5 percent in 2016. Household debt has stabilized around 82 percent in 2019. Nevertheless, the level of household debt in Malaysia is relatively high by regional standards. Of the total household debt, around 54.5 percent is residential mortgages in 2019. Household debt by monthly income (as a share of total) has decreased for households making less than RM3,000, from 22.8 to 18.5 percent perhaps partly as a result of loan affordability assessments following the introduction of BNM’s Responsible Financing Guidelines in 2012.

High household debt raises financial stability risks, although households also hold substantial assets and non-performing loans are low. Although growth in household debt has moderated in recent years, some households could face increasing stress, particularly if they are over-extended from easier lending conditions in the past and severe income shocks could erode household financial buffers and impact spending (see Nordin et al 2018). Financial stability concerns relating to household debt are cushioned by high household assets (more than twice the debt) of which 2/3 are considered liquid. Moreover, household non-performing loans have declined and are somewhat below the banking sector average of 1.6 percent of total lending.

The concept of “House price at Risk” (HaR) can be used to obtain a measure of worst possible outcome for house prices over a given horizon. Following the approach in IMF (2019), a housing-at-risk approach quantifies the risk of negative house price growth 4-quarters ahead. Specifically, we use the explanatory variables in the econometric model discussed in the appendix to derive a distribution of projected real house price increases four quarters ahead. Using this approach suggests that the mode of house price increase will stabilize around 1.5 percent four quarters ahead (see text chart).”

Continue reading here.