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Policy Area Papers on Housing policy

Commercial Real Estate Data - New Demands, Old Challenges
David Rees, World Economics, March 2018
The global financial crisis, followed by a global portfolio shift towards commercial real estate, has reinforced the demand for timely, consistent and transparent valuation metrics and transactions data. Current initiatives at global, country and market level are addressing shortcomings in this area; nevertheless commercial real estate markets pose unique data collection and presentation challenges. While users of these data should be aware of the difficulties and qualifications inherent in the collection and compilation process, enforcing uniformity of processes and definitions across markets and sub-sectors may come at a cost. Propositions that more data are always better than less and that market transparency is always better than opacity are fruitful topics for debate in the context of commercial real estate markets.
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Dissecting China’s Property Market Data
Meiping (Aggie) Sun, World Economics, March 2016
This paper analyses Chinese property market data to evaluate recent trends in the market and to make prognoses for the future. It considers whether or not the existence of high prices and at the same time an enormous rise in residential supply in terms of floor space under construction means that there is a ``bubble'' in China's property market which may burst, similar to what happened in Japan in the early 1990s. Evidence that the price of new homes moves almost perfectly with sales of new residential floor space rather than with completed floor space suggests that the housing market is behaving normally and follows mini boom and bust cycles like other industries. The analysis finds that there are low maintenance costs for buyers after purchase due to the lack of annual property tax and negligible depreciation of bare-shelled housing units which limits the risk of default. Although recently developers are under pressure to raise more revenue mainly due to high interest-rate borrowing from shadow banks, the author considers that the probability of a systemic collapse of housing market is minimal given existing taxation systems, easing monetary policy and the continuing urbanization process.
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Korean Housing Finance, Household Debt, and Economic Growth
Danny Leipziger, Jeehoon Park & Yoon-Shik Park, World Economics, September 2015
Governments around the world are confronted with the problem of stoking demand and re-firing growth. The Korean government has relied on making mortgage credit more readily available to boost the housing market and energize the economy. However, this policy exposes Korean households to additional financial risks given their high levels of indebtedness. Moreover, since typical Korean home mortgages feature short-term maturities, floating-rate interest payments, and final balloon payments of principal, such risks are heightened. The Korean mortgage system requires reform, and efforts are needed to reduce the vulnerability of Korean households in coping with possible external shocks, such as sharp interest rate rises and unexpected house price declines. Since housing accounts for almost three quarters of typical Korean household asset portfolios, the housing market, combined with an expected decline in the Korean population, has a significant implication for long-term growth prospects of the Korean economy and the fortunes of the middle class in Korea. The paper assesses public policy options for reform of the mortgage market in Korea with the aim of reducing vulnerabilities for households and for economy more generally. Governments facing similar policy choices as does Korea must balance policies for short-term growth with the longer-run risks involved.
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Did increased inequality cause the Great Recession?
Tim Congdon, World Economics, September 2015
This paper considers the basis of the thesis of left-wing economist Thomas Piketty, the author of Capital in the Twenty-First Century, that “a market economy based on private property” has “powerful forces of divergence” which are likely to increase future inequality. Although Picketty’s “fundamental contribution” has been lauded as a contribution in the field of data collection and presentation, Piketty’s book contains a number of “explanatory narratives”, with descriptions of events and the identification of possible causes. This paper considers its treatment of one such narrative, that rising inequality was a principal cause of the Great Recession of 2008 – 2010. An analysis of data on the US economy in the Great Recession shows that the behaviour of the corporate sector, unrelated to personal income inequality, was responsible for about half of the drop in demand. In contrast, the personal sector, where inequality could matter, experienced falls in residential investment and in personal consumer expenditure, but a long run investigation found no relation between the degree of inequality and the stability of the housing market. Finally, an econometric analysis of the effects of personal disposable income and debt on consumption, two variables highlighted by Picketty, showed them to have had close to no impact on the recorded change in consumption.
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What Were the Causes of the Great Recession?: The Mainstream Approach vs the Monetary Interpretation
Tim Congdon, World Economics, June 2014
Two ways of thinking about the causation of the Great Recession are contrasted: the ‘mainstream approach’ and the ‘monetary interpretation’. According to the mainstream approach, the Great Recession was due to the potential insolvency of the banking system and the correct antidote was tighter regulation. The paper proposes an alternative ‘monetary interpretation’, arguing that the macroeconomic trajectory of the major G7 economies in the Great Recession is readily understood by means of the monetary theory of the determination of national income. The main cause of the Great Recession is seen as a collapse in the annual growth rate of broad money from double-digit annual rates in the years before mid-2008 to virtually zero in the following three years. Further, the dominant reason for the money growth collapse was the abrupt and comprehensive tightening of bank regulation in late 2008. In particular, the raising of regulatory capital/asset ratios was a shock that intensified the downturn.
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Real Estate and the Great Financial Crisis
Richard Barkham, World Economics, September 2013
Politicians and macro policymakers have identified regulatory weakness in the banking sector as the key cause of the Great Financial Crisis (GFC). This allows the easy apportionment of blame and the straightforward, if painful, reforms to banks’ operating procedures. In fact, the real economic damage was done by the world’s first coordinated real estate boom and slump which was facilitated by the rise of shadow banking but not caused by it. From the mid-1990s cheap goods from Asia suppressed inflation, permitting a long period of monetary stimulation. Cheap capital from the same source depressed long-term interest rates. Real estate markets, particularly after 2001, experienced explosive growth which stimulated excessive construction activity and bank lending. Real estate constitutes about 40% of the world’s wealth and central banks singularly failed to see the dangers arising from a collapse of values in this sector. This is the real story of the GFC, which is set out in this article.
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Owner-occupiers and the Price Index
Ralph Turvey, World Economics, September 2000
The treatment of owner-occupied dwellings in Consumer Price Indexes varies between countries and is the subject of continuing controversy. Ralph Turvey explains the alternative possible treatments and reasons for disagreement.

Housing in the South East of England: Some issues raised by the Government’s plans
David Miles, World Economics, June 2000
Plans recently unveiled by the UK government will, if implemented, generate a
major increase in new housebuilding in one of the most crowded and congested
parts of the UK. The plans fail to take account of the impact on people living in
London and the South East—and in the rest of the UK—of such a policy. The
policy is based on a simplistic view of how demographic change affects the
housing market and it reflects a misunderstanding of economic forces and a
failure to think about impacts outside the South East. More seriously it reflects a
form of central planning that is insensitive to the real needs of people.