The Unassuming Economist

From the IMF’s latest report on the Euro Area:

“Macroprudential policies should be used more actively to manage financial vulnerabilities in both housing and corporate sectors. France, for example, has tightened large exposure limits for big French banks lending to highly indebted corporates, and some countries have increased their countercyclical capital buffers. However, bank-based tools cannot address risks arising from nonbank loans. As recommended in the 2018 FSAP, borrower-based tools could be legislated where they are currently unavailable, and used more proactively against risky firms and households. In particular a range of borrower-based tools for corporates (such as limits on loan-to-value ratios for commercial real estate, debt/equity caps and minimum ICRs) should be explored, and national macroprudential supervisors should have the authority to use these tools for all financial institutions. The authorities should also monitor liquidity risks in investment funds that are increasingly exposed to lower-grade corporate debt and real estate in search for yield. In order to be effective, comprehensive and comparable credit information systems need to be available in all countries. Urgently addressing data gaps in the area of commercial real estate and nonbank financial institutions is also needed to allow a fuller assessment of financial stability risks.”

From the IMF’s latest report on Germany:

“Real estate prices continue to rise rapidly while aggregate credit growth remains in check.

• House prices in major cities have continued to rise rapidly, moving further into overvaluation territory. Staff analysis suggests that house prices were overvalued in Germany’s main cities, from 10–15 percent in Stuttgart and Dusseldorf to 25–30 percent in Hannover, Frankfurt and Hamburg and more than 40 percent in Munich in 2017.11 The government has stepped up efforts to increase housing supply, including by allocating €2 billion to build 100,000 new social housing units during 2020–21, selling federally-owned properties to local authorities at reduced prices to build affordable housing, and providing a special depreciation allowance for new rental housing construction. The impact on house prices, however, is expected to be limited.

• Commercial real estate (CRE) prices have risen even faster than house prices (…) with a moderate decline in the yield on CRE investment (…). Price increases have been particularly large in the office sub-segment and banks’ exposure to the sector has risen over the last three years, despite the sizable share of equity-based and foreign-financed investment.

• These rapid price increases have not yet been accompanied by strong increases in credit growth at the aggregate level. Credit growth accelerated to a pace slightly exceeding nominal GDP growth, but the credit-to-GDP ratio remains low from a historical perspective and compared with other advanced economies. Bank lending to CRE-related activities also appears relatively small compared to the EU average, yet the impact of a sharp decline in CRE prices on bank balance sheets could still be important as defaults on CRE tend to be higher than those on residential real estate.

Additional macroprudential action is needed to guard against imbalances in the real estate sector.

• Urgently address data gaps. The Bank Lending Survey suggests that LTV ratios for new mortgage loans have been relatively stable on an aggregate basis (…), yet lack of granular loan information hinders a full assessment of potential financial stability risks in specific market segments. It is essential that these data gaps be addressed.

• Consider prompt activation of the existing borrower-based measures. Absent granular data alongside the prolonged rise in house prices, the authorities should consider implementing an LTV cap and amortization requirements on mortgages.

• Expand the macroprudential toolkit. Germany currently lacks income-based instruments for residential and CRE lending or other borrowerbased instruments for CRE lending. The authorities should consider introducing income-based instruments, such as a debt-toincome or debt-service-to-income cap. In addition, appropriate instruments for CRE should also be considered, taking into account diverse financing structures. As the government is currently reviewing the effectiveness of existing instruments, this is a right time to consider expanding the toolkit.”

On cross-country:

• For now, residential-property prices are likely to keep rising – The Economist
• Rate cuts cannot curb property boom and bust – Financial Times
• Not just San Francisco: City housing markets all over the world are far too expensive – MarketWatch
• Why financialisation is not causing the housing crisis – Centre for Cities

On the US:

• Waiting for Affordable Housing in New York City – NBER
• Fewer Renters Believe They Are Likely to Ever Own a Home – Wall Street Journal
• Do land use restrictions increase restaurant quality and diversity? – American Enterprise Institute
• A City’s Bold Housing Plan – New York Times
• Changing supply elasticities and regional housing booms – Norges Bank
• I am Jane. Do I pay more in the housing market? – IDEAS
• AEI Housing Market Indicators release on March 2019 data – American Enterprise Institute
• The Government Created Housing Segregation. Here’s How the Government Can End It. – The American Prospect
• Housing: Elizabeth Warren v. John Cochrane – Econospeak
• Oregon Legislature Votes To Essentially Ban Single-Family Zoning – NPR
• The next housing bubble could come from this technology – Los Angeles Times
• The US Housing Finance System: A Flawed Giant – Harvard Joint Center for Housing Studies
• Housing affordability and quality create stress for Heartland families – Brookings Institute
• The Great Price Deceleration – John Burns

On other countries:

• [Brazil] Brazil’s house prices continue to fall – Global Property Guide
• [Egypt] Egypt’s house prices falling sharply – Global Property Guide
• [Macao] Macau’s amazing, incredible, soaring property prices – Global Property Guide
• [Netherlands] Brexit fuels Amsterdam property price boom – Financial Times
• [Singapore] Singapore to Keep Property Curbs for Now as Sell-Off Risk Remote – Bloomberg
• [United Kingdom] Speech by Communities Secretary Rt Hon James Brokenshire MP at the Chartered Institute of Housing conference – GOV

Global Housing Watch Newsletter: June 2019

Looking for something to read over the summer? We asked experts for suggestions on books and papers to read on housing markets. Below are their picks:

Perceptions of House Price Risk and Homeownership by Manuel Adelino (Duke University), Antoinette Schoar (MIT) and Felipe Severino (Dartmouth College)
Nominated by: Ian Bright (ING)
Why? “People in the US generally consider buying a home to be a safe investment but there is considerable variation depending on income and age and between renters or owners. Further, the risks associated with home ownership are perceived to be much lower than and not correlated with owning shares but are positively correlated with past and expected movements in house prices. The results support suggestions that bubbles develop in house prices and help explain why individuals place more of their wealth towards housing than seems efficient. Similar patterns seem to exist in several European countries but have not been analyzed as thoroughly.”

Building the city: urban transition and institutional frictions by J. Vernon Henderson, Tanner Regan, and Anthony J. Venables
Nominated by: Remi Jedwab (George Washington University)
Why? “Very few papers have data on buildings and housing prices in developing countries.”

House Prices, (Un) Affordability and Systemic Risk by Efthymios Pavlidis, Ivan Paya and Alexandros Skouralis (all at Lancaster University Management School)
Nominated by: Enrique Martínez-García (Federal Reserve Bank of Dallas)
Why? “This is a very interesting contribution in an area (the intersection between housing economics and financial stability) that has a lot of academic and policy interest and few references. In this paper, the authors show employing the ∆CoVaR methodology developed by Adrian and Brunnermeier (2011, 2016) on U.K. data that, when the real estate sector is under distress, the tail risk of the entire financial system increases significantly. Their novel work also lends empirical support to the hypothesis that the banking sector is central for the transmission of systemic risk from housing to the overall financial sector. These results are, therefore, very relevant to assess the health of the financial system and its exposure to housing (for financial stability purposes).”

Order without Design: How Markets Shape Cities by Alain Bertaud (New York University)
Nominated by: Stephen Malpezzi (University of Wisconsin-Madison)
Why? “Order Without Design is one of the most important books ever written about cities.  Acclaimed planner-architect-urbanist Alain Bertaud distills lessons from a half century of practical and analytical work in dozens of cities ranging from New York and Paris, to Sana’a and Port-au-Prince.  Transport, land and housing, labor markets, urban form, and the proper role of urban planning are all covered concisely yet in amazing depth.  Rigorous yet eminently readable, the book is a lively demonstration of the gains from trade between planners and economists.”

Boom Town: The Fantastical Saga of Oklahoma City, its Chaotic Founding… its Purloined Basketball Team, and the Dream of Becoming a World-class Metropolis by Sam Anderson
Nominated by: Paavo Monkkonen, (University of California, Los Angeles)
Why? “By far the best “city” book I have read in a long time is called Boom Town by Sam Anderson. The history of Oklahoma City is fascinating! Not so much about housing markets, but it does have a chapter on the land rush settlement of the city (which is an amazing story) as well as segregation and urban renewal.”

Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier by Edward L. Glaeser (Harvard University)
Nominated by: Frank Nothaft (CoreLogic)
Why? “Urbanization has been a global trend that accelerated with the industrial revolution.  Harvard Professor Edward Glaeser presents the basic tenets of urban economics in an accessible manner to reach a wide audience, to reveal why cities have been the spark for innovation and the engine for job creation.  He places the evolution of urbanization within an historical context: The Black Plague and slums of early industrialization have largely given way to modern metropolises that serve as the focal point for economic vitality.  His writing flows naturally and is punctuated with examples he has observed in his international research.  Today in America the urban core is experiencing a renaissance of activity and attracting new millennial households.  You do not have to be a PhD economist to understand how this has occurred once you have read his book.”

Evicted: Poverty and Profit in the American City by Matthew Desmond and The Dream Revisited: Contemporary Debates About Housing, Segregation, and Opportunity by Ingrid Ellen and Justin Steil
Nominated by: Stijn Van Nieuwerburgh (New York University)
Why? “I would like to recommend two books, one which I have read and one which I am planning to read. Evicted by Matthew Desmond is an in-depth study of the eviction crisis in America. Through personal anecdote, Desmond tells a gripping story of eviction, housing segregation, and poverty. Towards the end of the book, he generalizes to the macro level and discusses implications for affordable housing policy. Beautifully written and inspiring for any economist interested in pursuing housing research. The second book is The Dream Revisited by Ingrid Ellen-Gould, from the Furman Center at New York University. The book brings together several experts to discuss affordable housing 50 years after the Fair Housing Act.”

Photo by Pj Accetturo

On cross-country:

• A housing market slump could drive global growth to a decade low, economists warn – MarketWatch
• Housing markets and macroeconomic risks – OECD
• Peak property: Building a bubble – Financial Times
• Recent Developments in the Economics of Housing – EconPapers
• Cities Are Surprisingly Fragile – Scientific American
• Residential real estate market cools in the eurozone – ING

On the US:

• 2019 State of the Nation’s Housing Report Shows US Housing Supply Falls Far Short of What is Needed – Harvard Joint Center for Housing Studies
• The Falling Supply of Low-Cost Rentals in US Metros – Harvard Joint Center for Housing Studies
• Working Class Americans Are Finding It Increasingly Difficult To Afford Housing – NPR
• Executive Order Establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing – White House
• Trump Administration to Take on Local Housing Barriers – Wall Street Journal
• Push to Overhaul Fannie, Freddie Nudges Up Mortgage Costs – Wall Street Journal
• Key Housing Indicators Weaken Further in 2019 – Federal Reserve Bank of St Louis
• The rent is still too damn high and 2020 candidates finally want to do something about it – CNN
• New data point to softening US housing market – Financial Times
• Nobody Knows What to Do About L.A.’s Homelessness Crisis – The Atlantic
• In Defense of Foreign Investment in U.S. Housing – Governing
• Rendezvous with density – Governing
• Democrats Get Serious About Affordable Housing – The American Prospect

On other countries:

• [China] Record Land Sale in Shenzhen Underscores China’s Housing Demand – Bloomberg
• [Italy] The role of arts in Venice’s property market – Financial Times
• [New Zealand] Delivering greater well-being in New Zealand: policy steps to increase housing affordability – OECD
• [Romania] Romania’s housing market cooling – Global Property Guide
• [South Korea] South Korea’s housing market improving – Global Property Guide
• [Sweden] Sweden’s house price boom is officially over – Global Property Guide
• [Ukraine] Ukraine’s housing market remains depressed – Global Property Guide
• [United Kingdom] Ikea wants to build homes in Britain that cost what the buyer can pay – CNN