The Unassuming Economist

On cross-country:

• Property price dynamics: domestic and international drivers – Bank for International Settlements
• Forget London House Prices. Take a Look at Paris – Bloomberg

On the US:

• Victims of NIMBYism, Unite – The Atlantic
• Technology is poised to upend America’s property market – Economist
• The cost of buying and selling homes is too high – Economist
• When California’s housing crisis slammed into a wealthy suburb, one public servant became a convert to a radically simple doctrine – New York Times
• Discriminatory housing practices are leading to the devaluation of Black Americans – Brookings
• The Distributional Impact of the Sharing Economy on the Housing Market – Harvard University
• Amid Climate And Housing Crises, Cities Struggle To Place Housing Near Transit – NPR
• Corporate Landlords Aren’t the Real Culprit – The Atlantic
• 10 Surprising Facts from America’s Rental Housing 2020 – Harvard Joint Center for Housing Studies
• Black Homeownership Shows Signs of Healing From the Wounds of the Great Recession – Zillow
• Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas – Philadelphia Fed
• California Housing Crisis Podcast: Presidential candidates want to make housing affordable – Los Angeles Times
• California Housing Market is Coming Back (Podcast) – Bloomberg
• Offering renters longer leases could improve their financial health and happiness – Brookings
• Home Value Growth Expected to Re-Accelerate Just in Time For Home Shopping Season – Zillow

On other countries:

• [Australia] The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets – Reserve Bank of Australia
• [Canada] Canada tweaks mortgage stress test in move that could boost housing market – Reuters
• [China] China’s Real-Estate Market Is Coronavirus Latest Victim – Wall Street Journal
• [Czech Republic] Prague’s unaffordable Old Town sends homebuyers to the suburbs – Financial Times
• [Ireland] Irish house prices grow at slowest rate in six years – Reuters
• [Ireland] Ireland’s political mess rooted in QE house price fallout – Financial Times
• [Netherlands] What is fuelling the Dutch house price boom? – Bruegel
• [South Africa] How Cape Town’s drought led to a housing market downturn – Financial Times
• [United Kingdom] How to fix Britain’s housebuilding problem – Financial Times

As 2019 draws to a close, below is our list of the top ten blogs of the year.

• Housing Market in Sweden
• Housing View – January 3, 2019 [2019 AEA Annual Meeting Special Edition]
• Paul Cheshire on Urban Economics 
• 2019 AEA’s papers on Inequality
• Housing Market in Malta
• 2019 AEA’s papers on Energy and Climate Change 
• Housing Market in Finland 
• Understanding Housing Supply: Views from Jenny Schuetz 
• Inequality of Opportunity, Inequality of Income and Economic Growth 
• Daniel Hamermesh: How Do People Spend Time?

Photo by Colton Duke

From VOX post by Jack Favilukis, Pierre Mabille, Stijn Van Nieuwerburgh:

“Housing affordability is a leading challenge for local policymakers around the world, yet a coherent framework for analysing the various policy options is lacking. This column builds such a framework and uses it to show that policies that make affordable housing more efficient, that expand rent control, and that increase vouchers have a redistributive effect. Upzoning policies creates smaller, but more uniformly distributed benefits.

The ‘housing affordability crisis’ has been in the headlines in many parts of the world, and for a good reason. Among the 50 largest metropolitan statistical areas (MSAs) in the US, half of all renter households spend more than 30% of their income on rent (Joint Center for Housing Studies of Harvard University 2018). They are rent burdened. Other common metrics to quantify the lack of affordability are average rent-to-income and house price-to-income ratios. All of these metrics have been rising in most major cities in the world. Housing affordability has been the leading challenge for local policymakers. Yet a coherent framework for analysing the various policy options is lacking.

A new framework

In a recent paper (Favilukis et al. 2019), we build a framework to evaluate four major housing policy tools – zoning changes, rent control, housing vouchers, and tax credits – that policymakers employ to tackle housing affordability issues. The framework is adapted from modern macroeconomics and finance. Each period, households that differ in age and labour productivity make choices about how much to consume, save, and work; whether to own or rent a house; the size of the house; and how large a mortgage to get if they own. Savings are invested in a government bond or in rental housing.

We introduce a spatial dimension in this macro model. The metropolitan area has two locations: the city centre where people work but only some households live (zone 1), and the suburbs/outer boroughs of the MSA (zone 2) from which households commute to work. Commuting has a time cost and a financial cost. Households can choose their location in each period. Households are risk averse and face labour income and mortality risk, which they cannot perfectly insure against. This market incompleteness is the key friction in the model. The government provides some insurance through the tax code, including for example unemployment insurance. However, local policymakers can affect the provision of social insurance by using affordable housing policies.”

Continue reading here.

Below is the latest update of the World Uncertainty Index (figure 1) and World Trade Uncertainty Index (figure 2). These indexes are constructed by Hites Ahir (IMF), Nick Bloom (Stanford University) and Davide Furceri (IMF).

To read how the index is constructed, see the paper here and also see the dataset here. The dataset includes the aggregate index (the index at the global level, by income group, and by region), as well as the country specific index (143 countries) from 1996Q1 to 2019Q3. It also contains a beta version of the historical index for about 80 countries starting from the 1950s.

See the coverage of the index in the press: Bloomberg, The Economist, Financial Times, Reuters, and Wall Street Journal.

Figure 1.

Figure 2.

From the IMF’s Finance & Development magazine:

“Markets and the state have long competed to control what Lenin called the commanding heights of the economy. After the Berlin Wall fell, markets seemed to reign supreme. Even many on the left, traditional supporters of a strong state, became champions of free markets. The brilliant economist Larry Summers professed “grudging admiration” for Milton Friedman and, while at the US Treasury in the 1990s, pushed for financial globalization, the free flow of capital across national borders.

Raghu Rajan never succumbed to the euphoria. While a firm believer in free markets and their benefits, he has been vocal about their costs. In Saving Capitalism from the Capitalists he wrote that the victims of competition should get help to ease their pain and secure their future: “Markets need a heart for their own good.” In 2005, in a now-famous speech, he warned that the excesses of financial globalization raised the odds of a “catastrophic meltdown,” earning a rebuke from Summers that Rajan was “slightly Luddite” and “largely misguided.”

The global financial crisis and recent discontent with globalization have proved Rajan prescient. His latest book attempts to go beyond warning of the dangers of unfettered capitalism to what can be done to fix it. Rajan suggests restoring the third pillar of society, the community, which he defines as a social group residing in a specific area that shares government and often a common heritage. Markets and the state remain indispensable, but “when the three pillars of society are appropriately balanced” … “society has the best chance for providing for its people,” particularly those who lose out from the effects of trade and technology.

Rajan points up the damage from international trade. US job loss from increased foreign competition, for instance, has contributed to lowering the life expectancy of middle-aged non-Hispanic white males. “It is as if ten Vietnam wars were simultaneously taking place, not in some faraway land, but in homes in small-town and rural America,” Rajan writes. Yet these communities’ fate was largely neglected by the mainstream establishment parties, who Rajan laments “do not even admit to the need for change” and tend to castigate losers from the effects of trade and technology as belonging to a basket of deplorables.

Rajan of course knows that communities too can pose dangers. The book contains a fascinating account of how markets and the state overcame the shortcomings of feudal communities, which provided stability but did little to spare most from abject poverty. Modern communities also erect walls, and overemphasis on tradition and fear of strangers and new ideas can leave people “trapped by the past.”

Still, Rajan argues, markets and the state have usurped communities’ power, and the balance needs to be reset. Power must devolve from global and national levels to the community. Rajan notes that as machines and robots begin to produce more of our goods and services, human work “will center once again around inter-personal relationships.” Communities could well be the workplace of tomorrow.”