The Unassuming Economist

From MacroPolo:

“With China’s Evergrande moving into what appears to be a managed default process, as we had previously anticipated, it’s time to look at the future of the property sector. Even without the Evergrande crisis, the property sector is bound to see a correction. The crisis simply made the writing on the wall clearer. Such a correction means that China’s notoriously outsized investment-driven model will have to be “right-sized.”

The right-sizing of investment, which mainly refers to fixed-capital formation that makes up about 43% of GDP, will inevitably hurt growth (see Figure 1). Getting a handle on the magnitude of the growth impact, therefore, will be key to any analysis of China’s economic future. To do so requires examining construction-related investment, which is composed mainly of private property investment and local government investment (including public housing and infrastructure).

Our baseline scenario assumes a 30% decline in private property construction through 2025. In total construction volume terms, that means a correction from 100 million units to roughly 70 million units. Such a correction will lead to annual property sales falling from 15% to 10% of GDP by 2025, which is basically the same level as in 2010. In other words, China intends to roll back the decade of rapid property sector growth in the next five years.

As a result, local government investment, which is basically public spending on infrastructure that depends largely on land revenue derived from private property investment, will likely decline by 3% of GDP over the same period. Combined with the property correction, we expect overall construction investment to be down by 6% of GDP.”

From a VoxEU post by Orsetta Causa, Maria Chiara Cavalleri, Michael Abendschein, and Nhung Luu:

“The capacity of workers to move regions in response to local economic shocks is a key dimension of labour market dynamism that could contribute to recovery from the COVID-19 crisis and support the green transition. This column presents new empirical evidence on how policies can shape the responsiveness of inter-regional migration to regional economic conditions, with a particular focus on housing markets, social policies, and business regulations. It highlights the need for articulating place-based policies to help prospective movers as well as stayers

Inter-regional migration can contribute to the smooth and inclusive recovery from the COVID-19 crisis (for instance, by helping to match workers and jobs) as well to the green transition (for instance, by helping labour reallocation towards low-carbon activities). Mobility across regions can also contribute to upward social mobility, for instance by allowing workers to move out of disadvantaged areas or declining sectors. While promoting mobility is not an end in itself, managing mobility is an important policy challenge, especially in countries with large and persistent spatial disparities between regions.

Recent work by the OECD (Causa et al. 2021, Cavalleri et al. 2021, OECD 2021a) examines the levels and trends of inter-regional migration within and across OECD countries. It presents novel cross-country and country-specific empirical evidence on economic and housing-related factors affecting people’s decisions to move to a different region within the same country. This work shows how policies influence the responsiveness of regional migration to regional economic conditions and shocks. It also contributes to the renewed interest in regional inequalities and placed-based policies (Siegloch et al. 2021, Ku et al. 2020, Iammarino et al. 2019).

We find that inter-regional migration varies significantly across OECD countries (Figure 1). In high-mobility countries, such as Hungary and Korea, around 5% of the population moves to another region each year. By contrast, mobility rates are below 1% in some Eastern and Southern European countries, such as Slovakia, Poland and Italy.”

Continue reading here.

On cross-country:

• Interest rate hikes will not dim the allure of property. Whatever the gyrations of the markets, most of us seem to have an innate fondness for real assets – FT
• Gentrification and Affordable Housing Policies – CEPA

On the US:   

• Rise in U.S. house prices to halve next year, affordability to worsen – Reuters poll – Reuters
• Top Housing Markets for 2022 – Realtor.com
• Zillow’s Hot Housing Takes for 2022 – Zillow 
• Despite low mortgage rates, America’s housing market keeps many first-time buyers on the sidelines – Market Watch
• Black and Hispanic renters experience discrimination in almost every major American city. A new study finds that property managers in Chicago, Los Angeles, Louisville, Houston, and Providence are least likely to answer prospective Black and Hispanic tenants – Vox
• Is the Chance to Turn Hotels Into Affordable Housing Slipping Away? As many of the city’s hotels sat empty during the pandemic and homelessness continued to rise, some saw an opportunity to solve both problems. So what happened? – New York Times
• Housing Affordability in the Wake of COVID-19. Regional Solutions for Southern California – Berkeley
• Why is the Biden administration increasing the cost of building houses? – NPR
• Playing Catch-up: Putting the Recent Home Building “Boom” in Context. – Zillow
• You Won’t be My Neighbor: Opposition to High Density Development – Sage Journals
• Biden administration to target money laundering in US real estate market. Anti-corruption drive could raise scrutiny of all-cash commercial and residential property transactions – FT
• It Took More Than Fannie and Freddie to Set Off the Housing Crash. Don’t let the other actors off the hook. – Wall Street Journal
• I changed my mind on rent control. Rent control won’t fix the housing crisis. It’s still a good idea. – Vox
• The FHFA’s Equitable Housing Finance Plans for Fannie Mae and Freddie Mac – Urban Institute
• Assessment Frequency and Equity of the Real Property Tax: Latest Evidence from Philadelphia – Philadelphia Fed
• What can a mortgage market crisis in Ireland teach the U.S.? Boston Fed paper looks at results of approach that gave banks more freedom to modify loans – Boston Fed

On China

• Amid Evergrande crisis, more Chinese developers to issue ABS – Reuters
• China property debt crisis puts founders on spot – Reuters

On other countries:  

• [Australia] Booming house prices driving massive increase in size of inheritances to $120bn a year. Report finds that despite helping the rich Australians get richer, inheritances are also shrinking relative inequality by giving a boost to poorer households – The Guardian
• [Australia] Australian house prices will keep rising and it’s truly depressing for those hoping to get into the market. Property prices look set to continue to grow for many more months to come – and certainly at a rate faster than wages – The Guardian
• [Canada] Toronto Home Prices Rise 22% to Record With Supply Vanishing – Bloomberg  
• [Canada] Red-hot Canadian property market to lose some steam in 2022: Reuters poll – Reuters
• [Denmark] Claudia Buch: A decade of macroprudential policy – Central Bank of Denmark
• [India] Indian house prices to lag inflation; affordability to improve – Reuters
• [Ireland] An Overview of the Irish Housing Market and Policy – Government of Ireland
• [New Zealand] New Zealand central bank says low net migration could cool housing prices. Easing of soaring property costs may affect RBNZ rate rise forecast next year, says deputy governor – FT
• [United Arab Emirates] Dubai property prices to get boost next year from foreign demand – Reuters
• [United Kingdom] London developers target old offices at risk of becoming stranded assets. Tighter efficiency rules leave owners of older buildings with choice of costly refurbishment or selling at a discount – FT
• [United Kingdom] UK house prices rise at fastest pace in 15 years. Record property values driven by limited housing stock and low lending rates as London market lags – FT
• [United Kingdom] British housing boom created £3tn ‘unearned’ and ‘unequal’ windfall. Resolution Foundation calls for review of tax treatment of main residences to tackle disparities caused by untaxed gains – FT
• [United Kingdom] U.K. House Prices Keep Rising on a Dearth of Supply – Bloomberg

From a NBER paper by Rebecca Diamond and Enrico Moretti:

“Income differences across US cities are well documented, but little is known about the level of standard of living in each city—defined as the amount of market-based consumption that residents are able to afford. In this paper we provide estimates of the standard of living by commuting zone for households in a given income or education group, and we study how they relate to local cost of living. Using a novel dataset, we observe debit and credit card transactions, check and ACH payments, and cash withdrawals of 5% of US households in 2014 and use it to measure mean consumption expenditures by commuting zone and income group. To measure local prices, we build income-specific consumer price indices by commuting zone. We uncover vast geographical differences in material standard of living for a given income level. Low-income residents in the most affordable commuting zone enjoy a level of consumption that is 74% higher than that of low-income residents in the most expensive commuting zone.

We then endogenize income and estimate the standard of living that low-skill and high-skill households can expect in each US commuting zone, accounting for geographical variation in both costs of living and expected income. We find that for college graduates, there is essentially no relationship between consumption and cost of living, suggesting that college graduates living in cities with high costs of living—including the most expensive coastal cities—enjoy a standard of living on average similar to college graduates with the same observable characteristics living in cities with low cost of living—including the least expensive Rust Belt cities. By contrast, we find a significant negative relationship between consumption and cost of living for high school graduates and high school drop-outs, indicating that expensive cities offer a lower standard of living than more affordable cities. The differences are quantitatively large: High school drop-outs moving from the most to the least affordable commuting zone would experience a 26.9% decline in consumption.”

From the IMF’s latest report on Albania:

“Enhanced surveillance of the fast-growing real estate market is needed. Housing price growth has averaged 11 percent annually since 2018, driven by prices in Tirana and coastal areas. Mortgages account for 64 percent of household loans and construction loans account for 13 percent of total loans to enterprises. Staff encouraged the authorities to address data gaps in the real estate market and develop indicators to closely monitor the potential impact of the sector on financial stability.”