The Unassuming Economist

From a new paper by Valerie Grossman, Enrique Martínez-García, Luis Bernardo Torres and Yongzhi Sun:

“This paper investigates the impact of oil price shocks on house prices in the largest urban centers in Texas. We model their dynamic relationship taking into account demand- and supply-side housing fundamentals (personal disposable income per capita, long-term interest rates, and rural land prices) as well as their varying dependence on oil activity. We show the following: 1) Oil price shocks have limited pass-through to house prices—the highest pass-through is found among the most oil-dependent cities where, after 20 quarters, the cumulative response of house prices is 21 percent of the cumulative effect on oil prices. Still, among less oil-dependent urban areas, the house price response to a one standard deviation oil price shock is economically significant and comparable in magnitude to the response to a one standard deviation income shock. 2) Omitting oil prices when looking at housing markets in oil-producing areas biases empirical inferences by substantially overestimating the effect of income shocks on house prices. 3) The empirical relationship linking oil price fluctuations to house prices has remained largely stable over time, in spite of the significant changes in Texas’ oil sector with the onset of the shale revolution in the 2000s.”

 

On cross-country:

• The State of Housing in the EU 2019 – Housing Europe
• Overvalued in the Long Room: London – Financial Times
• Global Residential Cities Index-Q2 2019 – Knight Frank

On the US:

• Drilling Down: The Impact of Oil Price Shocks on Housing Prices – Federal Reserve Bank of Dallas
• Increasing Access to Affordable Housing Opportunities in Silicon Valley – Federal Reserve Bank of San Francisco
• Why the U.S. Needs a New Vision for Affordable Housing – University of Pennsylvania
• Federal government has dramatically expanded exposure to risky mortgages – Washington Post
• Will the Supreme Court Strike Down Inclusionary Zoning? – Citylab
• Can Tiny Houses Change The Housing Debate? – Forbes
• A Primer on Housing Finance Reform – The Center for Growth and Opportunity
• When Mandating Affordable Housing Makes Housing Less Affordable – Reason
• Restrictive zoning is impeding DC’s goal to build more housing – Brookings
• Homeownership Without the White Picket Fence? Hispanic Homeownership in the US – Harvard Joint Center for Housing Studies
• Michael Bennet Tries to Break Through With Affordable Housing Plan – Time

On other countries:

• [Canada] The Propagation of Regional Shocks in Housing Markets: Evidence from Oil Price Shocks in Canada – Federal Reserve Bank of Dallas
• [Czech Republic] Czech Republic: Property price growth strong, for now – ING
• [United Kingdom] Now is the time for the government to increase the supply of homes – The Guardian

From the IMF’s latest report on Thailand:

“Credit and housing markets are also cooling down. Total credit growth—including credit from nonresidents—moderated from 5.8 percent in 2018 to 4.8 percent year-on-year in 2019:Q1, led by declines in corporate borrowing. While loans to households picked up in 2018 and remained buoyant through 2019:Q1—driven by auto loans and new mortgages housing loan demand softened following the tightening of loan-to-value (LTVs) in April 2019, and condo prices declined by 1¾ percent (y/y) also reflecting weaker foreign demand. The housing market is already going through a period of adjustment consistent with the broad-based cooling of the Thai economy.”

From LSE:

“The real estate industry is now worth $217 trillion, which is 36 times the value of all the gold in the world. What is more, it forms 60 per cent of global assets, and it is how one of the most powerful people on earth – US President Donald Trump – made his name. How, then, is the rise of the real estate industry transforming our cities and urban life? In Capital City, Samuel Stein argues that the emergence of the ‘real estate state’ has brought with it vicious gentrification, concomitant displacement of working-class people and remade our cities as temples of luxury development, rendering global cities increasingly inaccessible to all but an elite few. For Stein, ‘gentrification has become a household word and displacement an everyday fact of life’ (5).

Gentrification is, of course, a well-trodden path of academic inquiry. There is an extensive collection of books, articles and journal special editions spanning decades dedicated to the topic. Without treading on familiar ground, however, Stein approaches the issue at hand through the lens of urban planning. A central contention throughout is that, to understand gentrification, we must understand the rising political influence of real estate interests within local and national governments. Similarly, we are reminded of how these interests are actualised in a paradigm driven both by the growth imperative of capitalist development and the neoliberal state – that is, through urban planning and urban planners themselves. Early on in the book Stein, a trained planner himself, tells us that:

“This book is about planners in cities run by real estate. It describes how real estate came to rule, and what planners do under these circumstances. Planners provide a window into the practical dynamics of urban change” (6)

We can see, then, that Capital City is about understanding the dynamic that emerges between planners and real estate interests within the capitalist mode of production. It follows, therefore, that we must unpack the nature of urban planning itself. Stein’s genealogy of urban planning reveals that whilst the practice of planning is as old as human settlement, the profession of planning is a more recent phenomenon – and one with a rather oppressive history. ‘Proto-planners’, as Stein notes, advanced the ‘murderous westward expansion’ of the US (15),  and planned and facilitated slavery through plantations and the systemic racial inequalities eminent from decades of ‘redlining’.”

Continue reading here.

From a Vox post by Andrés Rodríguez-Pose, and Michael Storper:

“A dominant view in urban economics suggests that the solution to the housing crisis of major cities is to relax zoning and other planning regulations. This column challenges this position, arguing that there is no clear and uncontroversial evidence that housing regulation is a principal source of differences in home availability or prices across cities and that these issues are more linked to rising inequalities in the geography of employment, wages and skills. Blanket changes in zoning are unlikely to increase affordability for lower-income households in prosperous regions, but would increase gentrification without appreciably decreasing income inequality.

Housing in the largest metro areas the world over has become unaffordable for much of the population. Hard working individuals living in large cities have been priced out of better-quality housing. Those wanting to move from lagging regions into dynamic urban areas in search of better opportunities are also deterred by astronomical real estate costs. Segregation of housing and income inequality are increasing, as are commuting times.

According to the dominant view in urban economics, the main culprit for this situation is restrictive zoning in large metro areas (Katz and Rosen 1987, Quigley and Raphael 2005, Ihlanfeldt 2007, Glaeser and Gottlieb 2008, Saiz 2010, Kline and Moretti 2014, Hsieh and Moretti 2015, 2017, Ganong and Shoag 2017, Gaubert 2018). The solution is simple – the massive ‘upzoning’ of urban land by reducing the decision-making power of local communities over land use, so that they can no longer prevent high-density building. By getting rid of restrictions and letting the real estate developers in, more and more affordable housing will be built in those places where people have the greatest opportunities. Prosperous metropolitan area like New York, the Bay Area, or London will become bigger, more productive, and more socially inclusive. Inter-regional mobility will pick up and, as a consequence, income inequality will decline, both within cities and across the country (Hsieh and Moretti 2015, 2017).

Supply restrictions are therefore considered to be the main obstacle to solving the problem. Zoning prevents building enough housing to keep up with demand, increasing housing prices, rewarding landowners, as a consequence enhancing inter-personal and inter-territorial income inequality, and dissuading talent from flowing into more affluent regions (Hsieh and Moretti 2017, Ganong and Shoag 2017). It is also regarded as a major source of economic inefficiency, as lack of affordable housing may prevent these cities to reach their full potential (Glaeser 2017), limiting overall national growth and hurting the most vulnerable (Hsieh and Moretti 2017).

Finding a possible solution

According to this view, the solution is simple – cut regulation in order to build more and denser housing in metro areas. The greater affordability triggered by housing deregulation in the prime areas of prosperous metro regions would trickle down to the rest of the metro area. Following this view, a fast-growing coalition of high-income millennials (‘yes in my back yard’, or YIMBYs), urban planners who want density, developers, and elected officials has thrust this view into the public debate.”

Continue reading here.