The Unassuming Economist

On cross-country:

• Central banks push for action on Europe’s rising house prices – Financial Times
• Hypostat 2019 – European Mortgage Federation
• Negative interest rates are inflating real estate prices. These cities are at risk of a bubble – CNN
• The global real estate rethink – Axios

On the US:

• Stranded: Inequality, House Prices leaving People Trapped – IMF
• Opinion: Rent control is better than nothing, but it can’t fix California’s housing crisis – Los Angeles Times
• How to Kill a Housing Market – Wall Street Journal
• Bernie’s National Rent Control – Wall Street Journal
• Would AOC’s National Rent Control Solve the Housing Crisis, or Make It Even Worse? – Citylab
• How Rent Control Threatens the American Dream – Foundation for Economic Education
• Poll: 59% of Americans Favor Building More Housing in Their Neighborhood – Cato
• California’s Poorest Big City Faces a Different Kind of Housing Crisis – Citylab
• Affordable Housing – Bloomberg
• Help for California’s Housing Crisis Is in the Backyard – Bloomberg
• Mortgage Finance in the Face of Rising Climate Risk – NBER, New York Times
• Think San Francisco Housing Is Expensive? It Ranks 10th Globally. – Barron’s

On other countries:

• [Canada] To Tackle Housing Affordability in Canada, Build More Houses – IMF
• [Colombia] Building Inclusive Social Housing: Lessons from Bogota – Harvard Joint Center for Housing Studies
• [Panama] Panama’s property prices are rising strongly – Global Property Guide
• [United Kingdom] Employment and the collateral channel of monetary policy – Bank of England
• [United Kingdom] Divorce: dividing up the family home – Financial Times
• [Vietnam] Positive outlook for Vietnam’s property market – Global Property Guide

From an IMF Blog by Michal Andrle, Cheng Hoon Lim and Troy Matheson:

“Policymakers across the world worry about affordable housing. They should. It represents the cost of a basic human need—shelter. Canada is no exception as it grapples to provide affordable housing in some cities, like Vancouver and Toronto, where rents are high, and for many, the dream of owning a home has faded.

People who can afford a down payment typically borrow as much as they can to get a foothold in the market—stretching themselves financially and contributing to Canada’s record-high levels of household debt.

So, how can governments help make housing affordable? Our latest staff report suggests boosting housing supply to meet demand.

Short-term fixes may not always work

Boosting Canada’s supply of affordable housing is no easy task. Countries like Canada, the Czech Republic, Sweden, and the United Kingdom that face problems with housing affordability in major cities have found that housing policies can quickly become politically contentious.

For this reason, policymakers often resort to short-term fixes to the problem. These include relaxing prudential regulations to enable households to borrow more (higher loan-to-income and loan-to-value ratios), increasing or introducing tax-deductibility of mortgage interest-rate costs, and subsidizing home purchases directly.

According to our research, we find that even well-meaning policies that aim to improve housing affordability by increasing households’ capacity to borrow may unintentionally raise house prices—ultimately resulting in homebuyers having to borrow more and leading to higher household debt.

Why? Because housing supply is fixed in the short term. So, any increase in households’ ability to borrow will increase demand for housing, increase house prices, and ultimately make houses less affordable than they otherwise would have been.

This is what we found when we compared the dynamics of house prices in eleven Canadian Census Metropolitan Areas with households’ ability to borrow—the so-called “attainable” house price.”

Continue reading here.

On cross-country:

• Assessing House Prices: Insights from “Houselev”, a Dataset of Price Level Estimates – European Commission
• Rent control will make housing shortages worse – Economist

On the US:

• Should People Profit From Housing? Bernie Sanders Says Yes, and No – New York Times
• Bernie Sanders’s housing-for-all plan, explained – Vox
• Mortgage Investors Need Not Fear Supply Surge From New Housing – Bloomberg
• How Telecommuting Has Changed Real Estate – New York Times
• Did California Just Abolish Single-Family Zoning? – Reason
• Why the wealth inequality debate should be a housing debate – American Enterprise Institute
• Returns to owner-occupied Housing and Wealth Inequality – UCLA
• Why Are Small and Medium Multifamily Properties So Inexpensive? – University of Tennessee
• Housing Markets Turning Ugly In 2019 – Forbes
• The New Campus Housing Bubble – Forbes
• Statewide Rent Control Will Make California’s Housing Crisis Even Worse – Hoover Institution
• Real Housing Prices Stabilizing … or Falling – Econbrowser

On other countries:

• [Cambodia] Cambodia’s housing market is oversupplied – Global Property Guide
• [Finland] Finland’s housing market remains weak – Global Property Guide
• [Japan] Why Housing Is More Affordable In Tokyo – Milken Institute
• [Sweden] Sweden’s house prices have stalled – Global Property Guide
• [United Kingdom] More than 8 million people in England living in unsuitable housing – Guardian

From a new paper co-authored with  Remi Jedwab, and Anthony Yezer:

“It is obvious that holding city population constant, differences in cities across the world are enormous. Urban giants in poor countries are not large using measures such as land area, interior space or value of output. These differences are easily reconciled mathematically as population is the product of land area, structure space per unit land (i.e., heights), and population per unit interior space (i.e., crowding). The first two are far larger in the cities of developed countries while the latter is larger for the cities of developing countries. In order to study sources of diversity among cities with similar population, we construct a version of the standard urban model (SUM) that yields the prediction that the elasticity of city size with respect to income could be similar within both developing countries and developed countries. However, differences in income and urban technology can explain the physical differences between the cities of developed countries and developing countries. Second, using a variety of newly merged data sets, the predictions of the SUM for similarities and differences of cities in developed and developing countries are tested. The findings suggest that population is a sufficient statistic to characterize city differences among cities within the same country, not across countries.”

From the IMF’s latest report on New Zealand:

“The government is refocusing elements of its multi-pronged approach to improve housing affordability.

• On the demand side, the policy measures so far have included an increase in the accommodation supplement—a cash subsidy linked to low-income recipients’ actual rents or home ownership costs; the extension from two to five years of the period during which capital gains on residential investment property are taxed (“bright line test”); a change in the tax treatment of residential rental losses, which can only be deducted from future taxable income from rental properties rather than taxable income in general; and a ban on the purchase of residential property by nonresidents under the Overseas Investment Amendment Act.

• On the supply side, the implementation of the KiwiBuild program—where the government plans to build 100,000 affordable homes for first-time home buyers over ten years from 2018—is lagging. The government is currently considering a reset of the program, which is likely to be smaller in scale and more regional needs-based, while at the same time prioritizing social housing, and rent support for low-income households. The Urban Growth Agenda is the umbrella for other measures on the supply side, including related to planning, zoning, and the provision of housing-related infrastructure.

• On the institutional side, the government established the Ministry of Housing and Urban Development, consolidating responsibilities for the housing agenda. The government agency Kāinga Ora―Homes and Communities was established as the lead developer for affordable homes and social housing.

Staff’s Views

• Improving housing affordability would lower macrofinancial risks and contribute to more sustainable growth. Housing affordability has barely improved, notwithstanding the housing market cooling. House prices are expected to continue rising under the baseline economic outlook. Demand for housing is likely to remain strong, given population growth and low interest rates, while the supply response is constrained by land use and other restrictions. Construction costs are high. Improving housing affordability would reduce inequality and contribute to lower macrofinancial risks, and, in the longer term, make growth more sustainable, including by supporting productivity through agglomeration externalities. Supply-side reforms are central for broad improvements in affordability, although additional direct support might be required for some lower-income households.

• The government’s continued focus on advancing its comprehensive housing policy agenda is welcome. The consolidation for housing-related policies in one Ministry should help in policy implementation. Steps taken to support local governments’ infrastructure funding and financing to facilitate timely infrastructure provision are welcome developments.

• Nonetheless, the housing policy agenda could benefit from some further measures. The objectives of the KiwiBuild program could, at lower risk to the budget, be achieved through other means, including, for example, temporary tax credits for the construction sector to adopt new technology, rather than the government taking on the role of a developer. Staff welcomes the government’s intention to consider adding elements of tax reform, such as a tax on all vacant land, to the agenda. A broad land tax, for example, would support more efficient land use. Since the comprehensive agenda should foster housing affordability on a non-discriminatory basis, the ban on purchases of residential property by nonresidents should be removed, given its use is not in line with the IMF’s Institutional View (IV) on capital flows. At the local level, there should be reforms to simplify and standardize zoning and permit local councils to actively plan for and enable housing supply growth and planning reforms.

Authorities’ Views

• The implementation of the government’s multi-pronged approach to improve housing affordability is advancing. A more comprehensive housing policy agenda is taking shape, including increased focus on making housing for lower income households more affordable through a better accommodation supplement. The authorities highlighted that, in addition to the housing related measures already put in place, the new Ministry of Housing and Urban Development has reinforced institutional capacity to deliver the full breadth of the housing plan, including on the legislative changes needed to ensure more affordable houses and the related infrastructure development. The ministry will be supported by a new government entity for affordable housing development, Kāinga Ora―Homes and Communities, to strengthen delivery.

• The authorities do not consider the restrictions on purchases of residential property by nonresidents to be a CFM measure. The restrictions do not aim to affect capital flows or resolve a balance of payments issue. They are a demand-side measure to ban overseas speculators against the backdrop of the government’s comprehensive housing agenda. The goal is to create a housing market with prices shaped by New Zealanders, and to make homes more affordable. They also pointed out that the Phase I review of the Overseas Investment Act (OIA) not only brought residential land into the category of sensitive land but also simplified the rules for investment in forestry by overseas persons.”