Housing Bubble Research Articles

Limiting Mortgagors’ Liability and Questioning the Obligation to Repay

This article addresses different approaches to the spate of home repossessions experienced in Spain after the burst of the housing bubble in 2008. It considers the diverging ways in which various involved actors – legislators setting regulatory frameworks, debt advisors from governmental and non-governmental agencies, judges ruling on repossession procedures, anti-repossession movements advocating debt refusal and the ‘self-defence’ of the right to housing – have reacted to the housing crisis. Drawing on ethnographic fieldwork developed in the Barcelona metropolitan area, the article considers that a vindicatory approach, one that incorporates moral ideas of justice, informed some of these diverging reactions over and against the orthodox stance that the obligation to repay is absolute. The vindicatory understanding of justice advocates favouring debtors by taking into account their new circumstances and repairing the social harm inflicted on them.

An Empirical Study on the Relationship between Real Estate Price and Real Estate Investment Trusts of Shadow Banking via VAR Model: The Case of China

Purpose – The shadow banking business in China has expanded significantly in the past decade, especially in the real estate industry, which is closely related to the livelihood of many. The purpose of this paper is to investigate the relationship between the realized sale prices of real estates and the real estate investment trusts (REIT) of shadow banking in China. Design/Methodology/Approach – The analysis is performed with a VAR model based on Chinese data collected from Usetrust, CSMAR, the People’s Bank of China, and the National Bureau of Statistics of China during 2013 to 2020. It verifies the impact of the realized sale prices of real estate and relative macroeconomic indicators, on the REIT issuance of shadow banking by variance decomposition and impulse response analysis. Findings – The prices of real estate have the greatest impact on REIT, and there is a one-way Granger causality between them. The findings indicate that it would be beneficial to establish a real estate price prediction and warning mechanism for local governments and relevant institutions to avoid the potential risks to consumers, the finance market, and the real estate industry, which might be caused by price declines or shadow banking failures. Research Implications – In previous literature, it was found that the expansion of shadow banking affected the Chinese real estate market significantly, including an increase in real estate prices, risks of real estate bubbles, and a decrease in monetary policy. Most studies related to this topic collected data from official or commercial databases, respectively. Different from previous research to some extent, this paper is based on up-to-date data collected up the end of 2020. Additionally, it collects data from the two data sources from a broader aspect. The purpose of the research is to empirically explore the mutual influence of shadow banking and real estate prices, and facilitate the regulation of shadow banking for regulators and stakeholders.

The Shape of the Land Reform: Palermo 1960

The constitutional land reform in Italy, which took place in the 1950s, was accompanied by profound changes that affected not only the countryside, but cities as well. The reform was mainly addressed toward the south, il mezzogiorno, and Sicily in particular where the reform was intended to affect all cities in the region. On the one hand this was a social change dictated by the new constitutional principles, such as redistribution and employment increment in the agricultural sector. On the other hand, an economic boom complemented the redistribution, especially in the building sector. This combination was a main force in dictating the shape and the form of the cities during those years. Sicily’s main city, Palermo, experienced a major “restyling” during the twenty years that followed the reform. The depopulation of the historic city centre, due to the WWII bombings, provided an opportunity to think about new urban areas. Contrary to what was expected, a dark chapter in the history of Italian urbanization unfolded: the so-called Sacco di Palermo. The city was “ravaged” by property speculation, illegal constructions, and it was aesthetically deprived of its identity by the demolition of entire art nouveau districts and 18th century buildings which were later replaced with tower blocks. These real and concrete consequences are part of a network of connections through which law creates space, connections that this paper aims to study by shifting the perspective by asking: how does space create law? and how architecture regulates society? It takes Palermo as case study, in order to study spaces that the law creates intentionally and unintentionally. In giving a shape to the law, this paper aims to take into consideration urban spaces that will help to better understand how the idea and the definition of law relate to space, to cities and its main actors especially in terms of redistribution and property.

Surplus and capital profitability in the Spanish economy, and comparison with the Euro area. A political economy approach

ABSTRACT The article studies the evolution of both surplus and profit rates in the Spanish economy during the phase of the housing bubble, the subsequent crisis and the recent economic recovery (1995─2017), comparing as well core and peripheral economies of the Eurozone. From various methodological approaches and showing several indicators, this paper finds an underlying deep profitability crisis and an alarming drop in what we call the productivity of surplus, without reaching previous levels of profitability at the end of the period. This path has been offset by a reduction in interest rates, which promoted corporate indebtedness. The huge decrease of profitability in Spain is however consistent with its peripheral insertion into the Euro area. In opposition, the more advanced economies of the region were able to keep the level of capital profitability and even increasing the volume of surplus.

THE INTER-TIER SPREAD OF HOUSING BUBBLES: ARE LUXURY MARKETS TO BLAME?

Understanding the spread of asset bubbles is pivotal to the effectiveness of risk management. This study thus estimates housing bubbles and investigates how and to what extent price bubbles spread between the tiers of luxury and mass housing in Hong Kong. The results show that price bubbles spread between housing tiers, the spreading of bubbles is not uni-directional from luxury to mass tiers, and more than 60% of bubbles come from inter-tier spreading. Moreover, bubble shocks from the luxury tier have stronger spreading influences on the movements of bubbles in the mass housing tier than the other way around during the period before the end of the global financial crisis (GFC), whereas the opposite is true for the period after GFC. The findings are important for policy makers attempting to tackle soaring housing bubbles, financial institutions seeking to managing lending risk, and housing investors wanting to time the submarkets.

Real Estate Bubbles and Contagion: Evidence from Selected European Countries

Using quarterly housing price-to-rent ratios from 1970 to 2018, this paper investigated the presence of real estate bubbles at a national level in eight selected European countries, namely Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, and the United Kingdom. Then, we analyzed bubbles contagion among these countries. We applied the generalized sup ADF test developed by Phillips et al. (2015) to detect explosive behavior in house prices. Subsequently, we implemented the non-parametric model with time varying coefficients developed by Greenaway-McGrevy and Phillips (2016) to estimate bubbles contagion among European real estate markets. We found evidence of at least one historical bubble in all these countries, with Germany, the Netherlands, Portugal, and Spain currently experiencing a rising bubble. The results also suggest that bubbles are contagious between these real estate markets.

Testing for House Price Bubble in Seoul, Korea

This study identifies bubbles in Seoul housing markets using generalized supremum ADF (GSADF) test. Our empirical results reveal that bubbles are detected across all income quintile during sample period. Considering our results such as the magnitude of test statistics, duration periods of bubbles and the most prominent peaks in all GSADF, each group of households in income quintile would have experienced different bubble episodes such as different entry barriers to the housing markets. Specially, the households of ‘Fifth’ income quintile would have experienced relatively week bubble episodes compared to the other income quintile. This implies that the households with less income would face with the unfavorable environment when the house prices are highly volatile. Moreover, when house prices sharply increase and step into bubble periods, the less income households could encounter higher entry barrier to housing markets. Consequently, income gaps among households could magnify the differences of housing asset value among income quintile. This finding helps policy makers to prioritize which households of income quintile would be required attention in Seoul housing markets.

La calle proyectada en el planeamiento urbanístico reciente. Murcia, 2001-2016

The 'prodigious decade' of Spanish urbanism caused a large expansion of urban lands, but also a much greater amount of planned but undeveloped land. The planning for this 'expectant city' is a challenge for the future of our cities. In this work, the streets proposed in these plans are analysed by evaluating their dimensional characteristics (surface and width) and their habitability (pedestrian-cyclist space and previsions of tree lines). The research is focused on the city of Murcia, paradigmatic case of the expansive urbanism typical of the real estate bubble. We have studied 2,096 streets from 92 partial plans approved during the period 2002-2013. The results show how the analysed variables change according to the use and density of the sectors and can be useful to evaluate the improvement of the habitability of these streets before their execution.

Rational Expectation House Price Bubbles in Iran

Since the housing sector has an intricate relationship with other sectors of the economy, fluctuations in the price can be costly. Also, rising prices are either rooted in the underlying conditions of the economy or simply caused by the bubble, leading to different policies. Therefore, house price bubble can be considered as an early warning system to prevent adverse economic consequences. The present paper applies the theory of rational expectation bubble in the Iranian housing market during the years 2006-2020 using the Blanchard and Watson model. The theory implies that negative returns on house prices are less likely to occur if the bubbles exist. The risk assessment is, however, estimated by linear logistic function. The existence of bubble in housing market is confirmed based on 30 provinces

Theory and Practice of Crisis in Political Economy: The Case of the Great Recession in Spain

This paper addresses Marx’s theory of crisis in order to analyze the Great Recession in Spain, a peripheral economy within the Eurozone. It demonstrates that underlying the problem of the “housing bubble” is an incapacity to generate surplus value, which in turn explains certain particularities related to capital composition, productivity, wages, and finance. The article further carries out a critique of both orthodox and heterodox approaches that focus on (1) profit squeeze caused by labor market rigidities, (2) underconsumption due to stagnant wages, and (3) finances, interest rates, and indebtedness JEL classification: B14, E11, E20, E43, J30

Digitalisation, pandemics and current world (2019-2021)

The new millennium saw the collapse of the real estate bubble in the United States and, together with other variables such as the high price of raw materials, a major global economic crisis began in October 2008. In 2011, as a result of the confluence of technologies and connected objects (Internet of Things) sparked thoughts that, we began to speak the Fourth Industrial Revolution. On 31 December 2019, pneumonia of unknown origin was discovered in Wuhan, capital of Hubei province, P.R. China. This unexpected event is being a driver of the great digital transformation of the world that began after the 2008 crisis.

ASSESSING MARKET RISK DURING FINANCIAL CRISES – AN APPLICABLE METHOD OF USING VALUE AT RISK AND EXPECTED SHORTFALL IN INVESTMENTS

Amid financial crises, the risk of losing money from the investing activity is higher due to the volatility of the market, and unpredictable movements of the prices. Thus, methods for risk measurement such as Value at risk and expected shortfall, help investors and fund managers to prepare for the potential losses and hedge accordingly. This paper summarizes the last three major crises (dot com bubble, the housing market bubble, and healthcare crisis) in an attempt to decide which of them induced the highest market risk, by applying Value at risk and expected shortfall methods to S&P 500 index. Knowing the past and learning from how the stock market moved during these crises help the investors to prepare for future crises.

Collateral versus crowding out: policy implications on China’s housing and manufacture sectors

ABSTRACT We study the mechanisms through which macroeconomic level shocks, namely macro easing and industry curbing policies from the government and housing preference shock from the households, exert their impact on the real estate and manufacturer sectors in China. Our analysis shows that whilst the macro easing monetary policy stimulates overall investment in the two sectors, it also causes the crowding out effect, inducing the capital flow disproportionally to the real estate industry. In this sense, it resembles the positive housing preference shock by contributing to the imbalance between housing and real industry. Meanwhile, policies aimed at curbing real estate boom have a leakage effect, which can offset the crowding out effect from the housing preference and easing monetary policy shocks. Both crowding out and leakage effects stem from the heterogeneous characteristics of durable and non-durable goods produced by real estate and manufacture sectors, respectively, instead of from heterogeneous borrowing constraints. Our results add to the understanding of transmission mechanisms of different policies on production sectors and provide insights for policy makers on how to effectively apply policies to affect the economy in a macro-prudential way.

Identification of house price bubbles using robust methodology: evidence from Polish provincial capitals

This article aims to check whether there has been a price bubble in the Polish major housing markets in recent years. To accomplish this goal, the log price-to-rent ratios in Polish provincial cities were analysed. In order to avoid incorrect conclusions, the log price-to-rent ratio using the instrumental variable estimation and ordinary least squares methods was decomposed into two components: fundamental and non-fundamental. The latter was then examined using the Phillips, Shi, and Yu procedure to detect explosive and downward movements. The results of the study showed that, in general, over 2011, actual log price-to-rent ratios in the analysed cities were below their fundamental values, i.e., a negative price bubble existed. However, more or less since the beginning of 2013, the surveyed markets have seen an increasing level of the non-fundamental component of the index under study, and its particularly explosive movements are visible in the first quarters of 2014. Finally, this analysis indicated future research directions and study implications for Polish policy-makers, housing investors, and households.

Collateral Booms and Information Depletion

Abstract We develop a new theory of information production during credit booms. Entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources. Lenders can protect themselves from such diversion in two ways: collateralization, and costly screening that generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values make it possible to reallocate resources towards productive projects, but they also crowd out screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), economic activity expands but the economy’s stock of information on existing projects gets depleted. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing projects, which takes time to rebuild. We provide empirical support for the mechanism using US firm-level data.

Prosperity or Real Estate Bubble? Exuberance Probability Index of Real Housing Prices in Chile

In this paper, we approached the concept of real estate bubble, analyzing the risk its bursting could generate for the Chilean financial market. Specifically, we analyzed the relationship between real housing prices, the economic activity index, and mortgage interest rates denominated in inflation-linked units from 1994 to 2020. The analysis was based on a second order Markov switching model with the predetermined variables mentioned later, whose parameters were obtained through the expectation–maximization algorithm. Then, we built a probability index as early warning indicator for potential imbalances in the real estate price that could put financial market stability at risk. The indicator is important to evaluate economic policy calibrations in time. A main finding was that the real housing price had a non-linear relationship with economic activity and the mortgage interest rate. Therefore, the evolution of the real estate price has been consistent with fundamental macroeconomic variables, even under a high growth regime, with increases above 12% per year. About 92% of housing price variability derived from changing macrofinancial conditions, suggesting a low margin of speculative behavior.

Does real estate bubble affect corporate innovation? Evidence from China.

With the rapid increase of downward pressure on China’s economy, the stability of the property market, as an important part of the economic transformation process, also has a far-reaching impact on enterprises’ R&D investment. We select the data of Chinese large and medium-sized industrial enterprises from 1998 to 2015 as our research sample and propose a new combination measurement model based on closeness degree to measure the real estate bubble level in China accurately. The structural vector autoregressive (SVAR) theory is utilized to empirically test the dynamic relationship between the real estate bubble, corporate liquidity, and R&D investment. The results indicate that the real estate bubble level in China is increasing, and a certain risk of deviating from the safety interval in the future exists; The rapid expansion of the real estate bubble has a continuing negative impact on corporate R&D investment, that is, its "credit mitigation effect" is much smaller than the "capital relocation effect," and industrial enterprises will fall into the so-called "low-tech lock-in" state. In other words, to a certain extent, the development of this kind of real estate bubble will not be conducive to the transformation and upgradation of enterprises and long-term economic growth.

Environmental inequity in hilly neighborhood using multi-source data from a health promotion view

The study focused on the justice of residents' opportunity to engage in healthy behavior under different environments is not vast, especially in a hilly dwelling environment. Therefore, this paper investigates environmental inequalities in a hilly urban environment in the context of the booming real estate market in China, comprised of health promotion-related elements, namely, built environment, physical activity facilities, street infrastructure, green spaces, and environmental perceptions. The multi-source data are used to calculate environmental attributes and the socioeconomic status of communities. We take the central districts of Dalian city as the research area and measure environmental equity across different socioeconomic residential areas using the Kruskal-Wallis one-way analysis of variance. The results reveal the spatial disparities in physical activity facilities, street greening, and positive perceptions between different communities. However, green injustice is mitigated in the hilly neighborhoods when we consider only ground-level greenness. This paper studies environmental justice by taking a health-enhancing view, and the results of this study can provide guidance on hilly urban development for government leaders and planners.

Housing Market Speculation and Firm Productivity: Evidence from China

AbstractAn appreciation in the price of housing could generate speculation opportunities for enterprises. Many firms try to seize these opportunities for quick returns. This may harm their productivity. We use the real estate boom and the investment activities of Chinese manufacturing firms during 2006–2017 to examine the processes and the net effect of housing market speculation on firm productivity. We find that housing market speculation negatively affects firm productivity by crowding out investments in research and development and productive fixed assets, and the positive effect brought about by a strengthened balance sheet and better financing capacity is outweighed by the crowding‐out effect. This negative impact is more evident in state‐owned firms, but is mitigated in regions and periods with better business environments. Set in the overheated housing market in China, our study contributes to the existing literature by exploring how firms’ investments outside of their main business influence firm behavior and productivity.

Testing Housing Markets for Episodes of Exuberance: Evidence from Different Polish Cities

In the study we use the right-tail unit root test to analyse the presence of mild explosive dynamics (exuberance) in housing prices of the 17 largest Polish cities in the period 2006–2021 (for quarterly data). In terms of real prices from the secondary market, we were able to demonstrate the existence of episodes of mild explosive dynamics for 13 of the 17 cities studied. When we changed the context of the study and performed the same tests for the price-to-income ratio, we found that episodes of price exuberance could be indicated only in the case of two cities. The overall conclusion is that rising average incomes tend to mitigate the explosive dynamics and change the context in which the whole issue of housing bubbles is viewed. The answer to the question of whether there is indeed already a situation of price bubbles in local housing markets in Poland is of course crucial for those interested in buying or selling a housing unit (i.e., the participants of this market), but it must also remain important for the monetary authorities implementing monetary and macroprudential policies in Poland.