The Unassuming Economist

On the US:

• Nine rules for better housing policy – Brookings
• Can more housing supply solve the affordability crisis? Evidence from a neighborhood choice model – Regional Science and Urban Economics
• Land Use Regulations, Migration and Rising House Price Dispersion in the U.S. – University of Southern California
• Priced out of the American dream – Financial Times
• America Can’t Afford Ben Carson’s Housing Cuts – Bloomberg
• Getting it Right: Examining the Local Land Use Entitlement Process in California to Inform Policy and Process – Berkeley: Center for Law, Energy & the Environment
• Learning from Hurricane Sandy? Rising Seas and Housing Values in New York – ECONOFACT

On other countries:

• [Australia] Is Australia’s Housing Boom (Finally) Coming to an End? – Wall Street Journal
• [Canada] Mortgage Growth in Canada Hasn’t Been This Weak Since 2001 – Bloomberg
• [Canada] Canada’s Economy and Household Debt: How Big Is the Problem? – Bank of Canada
• [China] China’s Dandong property prices jump on Korea talks – Financial Times
• [Hong Kong] What Could End Hong Kong’s Property Boom? Here Are Some Triggers – Bloomberg
• [Israel] Housing Market in Israel – IMF
• [New Zealand] Loan-to-Value Ratio Restrictions and House Prices – Reserve Bank of New Zealand
• [New Zealand] Housing Leverage and Consumption Expenditure – Evidence from New Zealand Microdata – Reserve Bank of New Zealand
• [New Zealand] Land Use Regulation, The Redevelopment Premium and House Prices – University of Auckland
• [United Kingdom] Is innovation the answer to the chronic under-supply of housing in the UK? – Cambridge Centre for Housing & Planning Research

Photo by Aliis Sinisalu

From ECONOFACT:

The Issue:

“The chance of large-scale coastal flooding episodes is increasing. In the last few decades, sea levels have been rising steadily at about 3 centimeters per decade and many estimates expect that this rate will accelerate going forward. At the same time, the population living in coastal counties in the United States grew by 40 percent between 1970 and 2010 and is projected to continue rising. Are people considering the increased risk of flooding associated with sea level rise in their housing decisions? Looking at what happened to property values in New York City after Hurricane Sandy gives us a first look at how those on the front lines may be responding.”

The Facts:

• “Past research has found the response of homebuyers towards flooding risks and the threat of other climate-related hazards to be short-lived. While a region’s exposure to hurricanes or flooding does not vary greatly from one year to the next, many studies have found that homebuyers tend to take these risks much more into account immediately following hurricanes and other catastrophic events. However, these effects tend to be short-lived —very often vanishing completely within five years (see here and here). Flood insurance take-up rates, for instance, have tended to spike the year after a flooding event and then gradually decline to the levels that prevailed before the flood. This response happened not only in the flooded zones but – to a lesser extent — also in non-flooded areas in the same television media markets according to one study. While the risk of flooding remains objectively the same, people may be more aware of it following a flood and then tend to forget about it with the passage of time. It is also possible that, as time goes by, new people who have had less direct exposure to the risk move into the area. These facts suggest a gap between objective probabilities of flood risk and households’ perceptions of this risk. In addition to the psychological biases mentioned, coordination problems, misguided policies, and the expectation of financial assistance by the government in case of disaster might contribute to a mismatch between home prices and damage risk.”

• “Hurricane Sandy was a climatic event of unprecedented proportions that impacted the Greater New York region. The storm hit New York on October 29, 2012. At the time, Sandy was the largest Atlantic hurricane on record and the second costliest in U.S. history (behind Hurricane Katrina), with damages amounting to over $19 billion. Hurricane Sandy flooded 17 percent of New York City (or nearly 90,000 buildings).”

Continue reading here.

A new post by Brian Schaitkin says that “Economist Michael Mandel of the Progressive Policy Institute tells a reassuring story about what will happen to retail employment. Jobs behind retail counters and stocking store aisles will simply be replaced by jobs at warehouses, e-commerce facilities, and as delivery drivers.” How quickly will this happen? He provides forecasts under the “Apocalypse is an Exaggeration” and “Apocalypse is Ongoing” scenarios:

“[…] Under an “Apocalypse is an Exaggeration” scenario, e-commerce will grow at a modest pace as a share of total retail sales because many of the lowest hanging e-commerce fruit have already been plucked. Therefore, the transformation from in-store retail to e-commerce would take quite a long time. The logistical challenge of shipping books to individual customers is orders of magnitude less complicated than delivering groceries. The “in-store” experience also provides special value to some consumers, especially when the ability to touch and feel merchandise and consult with experts is part of the value proposition stores and their workers provide. Firms will learn how to adapt to the challenge of e-commerce in less easily adapted industries, but because of these challenges, growth in the e-commerce share may increase by only 6.8 percent every 13 years, as happened between 2005 and 2017.  Under this scenario, the share of e-commerce in retail sales would be 21 percent by the end of 2040, and the “old and new” retail sector will employ 16.8 million workers, compared to 17.6 million today.  A disappointing job trajectory to be sure, but hardly apocalyptic.”

“The 2005 to 2017 period though lights the way to a bolder, yet in my view more likely “Apocalypse is Ongoing” scenario. This scenario assumes that exponential growth of the e-commerce share will continue as it did from 2005 to 2017 meaning that the e-commerce share of retail will double every 6.5 years. Incentives for firms to adapt new sectors to e-commerce will be tremendous due to the convenience and efficiency commerce without stores can provide. Companies can apply the lessons from developing one form of e-commerce to new product areas with knowledge of the pitfalls they are likely to encounter. Under this scenario, e-commerce would represent 18 percent of retail sales by the middle of 2024, 36 percent by the end of 2030, and 100 percent by the middle of 2040.  Initially, job losses resulting from the shift to e-commerce would be small in “old and new” retail with 738,000 jobs disappearing between now and the end of 2025.  By 2040, however, only 12.1 million workers, all employed by “new” retail sectors, would be able to manage all retail sales activities, a loss of 5.5 million jobs.”

Continue reading here.

From the IMF’s latest report on Israel:

• On house price developments: “Housing price increases have slowed significantly but supply may also be weakening. After more than doubling since 2008, house price rises slowed to under two percent y/y in 2017, below household income growth. Transactions also declined, with investor activity likely affected by the proposed tax on owners of more than two apartments, and first-time buyers waiting to see the “Buyer’s Price” program impact.5 But residential investment began to decline in mid-2017, and a 16 percent y/y fall in starts in H2’2017 suggests further falls to come.”
• On financial sector and housing policies:
  • “Israel’s banking system is healthy. Capitalization, loan quality, and profitability continued to improve in 2017. The leverage ratio rose to 7.5 percent, exceeding that in most advanced economies. All five of the largest banks met the capital requirement, enabling them to resume or raise dividend payouts in 2017.”
  • “Household debt remains relatively low, with well-contained risks, and business debt has stabilized after declining significantly. The household debt ratio has been rising for a decade, but remains low at just over 40 percent of GDP. The BoI has maintained strong macroprudential measures in the housing area (…). As a result, new mortgages with LTVs over 75 percent have been almost eliminated, and the share of lower LTV loans has risen. However, consumer credit, which usually has a variable interest rate, is almost two-fifths of total household debt, calling for close monitoring. Business sector debt has declined to below 70 percent of GDP, with the stock of corporate bonds falling to 19 percent of GDP by 2017, 9 percent of GDP less than their former ratio. Limited supply and the global search for yield may be contributing to low spreads on these bonds.”
  • “Slowing housing construction despite still high housing prices calls for reforms to make supply more responsive to needs and to improve housing affordability. The authorities estimate that 45–50 thousand new housing units are needed annually during 2015–2020, rising to 60 thousand annually by 2026–35. Completions appear sufficient in 2016–2017, but shortfalls could return given recent falls in housing starts. Hence, continued reform efforts are needed:
    • “Land supply, competition, and regulation. Increased land auctions are needed to avoid supply constraints and to help make construction more responsive to variations in demand. Construction costs and time to build should be reduced by streamlining building regulations and expanding foreign construction company access.”
    • “Municipal incentives. To encourage timely municipal approval of residential development, residential property taxes should be raised—while avoiding work disincentives—coupled with predictable central government support to municipalities for the up-front costs of additional infrastructure and public services.”
    • “Expand commutable areas and increase urban density. Well-developed public transportation can expand commutable areas and relieve demand in major centers, hence plans to establish metropolitan authorities are welcome. Urban renewal should be increased as density in Tel Aviv is relatively low, including through the proposed fast-track approvals of mixed use development.”

      

A new post by Peter Dizikes summarizing David Donaldson’s new paper on how railroads helped India trade and grow: “railroads fostered commerce that raised real agricultural income by 16 percent.”

“Donaldson’s paper on the subject, “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure,” just published in the American Economic Review, may also speak to the importance of infrastructure more broadly. After all, as he notes in the paper, about 20 percent of World Bank lending in the developing world goes to infrastructure projects. And in the United States, debate rolls on about the value of building and refurbishing America’s roads, bridges, railroads, ports, and airports.”

“And while every country is different, and circumstances change over time, Donaldson’s research suggests that the growth India experienced as its railroads grew was specifically the result of increased trade, a general finding that could be applied to other countries and other eras.”