Comments by Anwar Nasution, on International Co-movement of Housing Price Cycles in East Asia and Greater China

Abstract

Anwar Nasution: This paper analyzes the characteristics of international housing cycle co-movement of six East Asian countries for the period from 2001:Q1 to 2010:Q1. The six countries are China, Hong Kong, Japan, Korea, Singapore, and Taiwan. This paper is rich in econometric techniques, but does not provide a sensible explanation on what causes the cycles in each country or how the problems are linked and transmitted to other countries. The housing sector and real estate sector in general belong to the non-traded sector of the economy. The non-traded goods and services are only consumed where they are being produced and, because of this, they are neither exported nor imported.The demand for housing is affected by demographic and economic factors. In countries such as the United States, the demographic factors—the increasing demand or shortage for housing—is, among others, determined by the number of immigrants and the baby boom generation. In contract, China's one-child policy implemented in 1979 reduced the demand for housing. Originally, the main purpose of the policy was to curb the surging population to avoid potential food shortage. As in other Asian countries, a Chinese parent prefers boys over girls, who could presumably work harder on farms, earn more money, and carry the family name. Experts estimate that by 2020 there will be 30 million more Chinese men of marrying age than women. To meet the supply of brides, China now imports women from Indochina and other Asian countries (Nikkei Asian Review, 11–17 May 2015). Except from a small number of inter-marriages and flows of skilled technicians and managers, there is no large migration from one country to the others between East and South East Asia. Increasing openness of the economies in this region to international trade does not necessarily mean openness to international migration.In general, the paper discusses economic factors, such as fiscal and monetary policies, that affect both the supply and demand for housing. The 2008–09 global financial crisis suppressed external demand for export-oriented China and other Asian countries. To avoid recession, all of these countries stimulated their economies through the expansion of fiscal and monetary policies. The policy expansion was partly done through the shadow banking system, which is popular mainly in China. Most of the shadow banks in China are owned by local governments and are not regulated or supervised by the central bank. The central and local governments released undeveloped state land for the construction of new housing projects. The stimulus was not only in the form of easy credit with lower interest rates but also in homebuyer tax credits to motivate households to become homeowners. Some have more than one house to be used as investment.The paper failed to discuss the issue of how the housing sector in one country in East or Southeast Asia is transmitted to other countries in the same region. The lesson we learned from the U.S. housing crisis in 2007–08 was that it was transmitted all over the world through mortgage-backed securities. These derivatives were then sold all over the world mainly to mortgage brokers and investment bankers in Canada, the EU, and the UK. There are no such securities in relatively underdeveloped financial markets in Asia.