Rise Of Housing Research Articles

The Contribution of Foreign Real Estate Investment to Housing Price Growth in Australian Capital Cities

This paper models the effects of foreign investment in real estate on housing prices in Australia. We use a variety of panel data models that account for cross‐sectional heterogeneity across Australian cities and find that increases in investment are significant predictors of rises in the Australian Bureau of Statistics’ Residential Property Price Index. Our results are generally robust and suggest that increases in foreign investment account for between 20% and 30% of the rise in housing prices between 2004 and 2014 in Sydney and Melbourne. In other capital cities the effects appear to be negligible. Some policy implications of our findings are discussed.

The Rise in Housing Prices, Housing Property Gap and Dynamic Mobility

In order to deeply understand the impacts of housing market reform and the rise in housing prices on social mobility, this paper makes a dynamic quantitative analysis of the mobility trend and structure of housing property of Chinese urban citizens for the first time by using the data from eight longitudinal urban household surveys of CHNS from 1989 to 2011. It arrives at the main conclusions as follows: firstly, as for trend, after the housing reform, the level mobility of urban housing property increases rapidly because of the rise in housing prices, but the position mobility reduces, the degree of position interchange weakens, and the family positions at medium or above level is more solidified; secondly, as for structure, before the housing reform, the upward mobility of housing property positions of common technical personnel, workers of stateowned and collective enterprises, and the middle-aged group is strong, and after the housing reform, the housing property positions of senior professional & executives at the top are solidified, and the upward mobility of employees in state-owned enterprises, government entities and government-affiliated institutions strengthens. It enriches related literature of social mobility, and has important guidance to how to increase social welfare and advance harmonious and stable social development.

Interwar Housing Speculation and Rent Profiteering in Colonial Calcutta

Following World War I Presidency towns in British India witnessed a sudden, abnormal rise in housing and rents, resulting in heated debates about the relation between municipal governance, the market, and private capital. By studying this particular moment, Bhattacharyya's article uncovers the emergence of a housing and rent market in Calcutta predicated on notions of housing rights as an outgrowth of worker protest and militancy, on the one hand, and market speculation in land and housing on the other. This tension opened up a space for colonial intervention, one that drew upon numerical reasoning driven by discourses of financial calculations of value and potential risks within the emerging urban real-estate market. The article contends that the regulations surrounding the housing speculation during the 1920s were an early bureaucratic exercise in rationalizing the urban land market in order to make it efficient by regulating the ways in which land and housing accrued value economically.

Understanding Housing Market Volatility

The Campbell–Shiller present value formula implies a factor structure for the price–rent ratio of housing market. Using a dynamic factor model, we decompose the price–rent ratios of 23 major housing markets into a national factor and independent local factors, and we link these factors to the economic fundamentals of the housing markets. We find that a large fraction of housing market volatility is local and that the national factor has become more important than local factors in driving housing market volatility since 1999, consistent with the findings in Del Negro and Otrok (2007). The local volatilities mostly are due to time variations of idiosyncratic housing market risk premia, not local growth. At the aggregate level, the growth and interest rate factors jointly account for less than half of the total variation in the price–rent ratio. The rest is due to the aggregate housing market risk premium and a pricing error. We find evidence that the pricing error is related to money illusion, especially at the onset of the recent housing market bubble. The rapid rise in housing prices prior to the 2008 financial crisis was accompanied by both a large increase in the pricing error and a large decrease in the housing market risk premium.

Labour and the Land: The Making of the Community Land Act, 1976

Angered by an unprecedented rise in house and land prices and by the depredations of property developers such as Harry Hyams, who built Centre Point, the Labour Party unanimously embraced land nationalization at the 1972 and 1973 conferences. In the event, the Labour government that came to power in 1974 did not nationalize the land, but it did pass the Community Land Act empowering local authorities to acquire at ‘use value’ land that could be used for development. This was the third and, as it turned out, last time since 1945 that the Labour Party enacted legislation to limit the free market in land and property. This article examines why Labour in spite of its previous failures tried again to secure a permanent change in land ownership and why this last attempt also failed because of a combination of external economic pressures and the inherent limitations of Labour's reform effort.

The dynamics of metropolitan peripheries: Ongoing changes in residential development in the North-Western corridor of the Madrid region

This paper examines the ongoing transformations of residential development underway in the North-Western corridor of the Madrid metropolitan region, which are a consequence of a deconcentration process that has affected the capital of Spain over several decades. It also outlines the historical forces that have paved the way for the contemporary suburbanisation process. This part of the Madrid region, traditionally used for animal husbandry or leisure activities for wealthy social classes, was later occupied by second homes. In recent years we have observed a transformation of these second homes into principal residences, together with a construction of brand-new primary residences. This is linked to the rise in housing prices occurring in central Madrid, which has fostered a centrifugal movement of population. This process has particularly affected single-family housing.

Understanding Housing Market Volatility

The Campbell-Shiller present value formula implies a factor structure for the price-rent ratio of the housing market. Using a dynamic factor model, we decompose the price-rent ratios of 17 major housing markets into a national factor and independent local factors, and we link these factors to the economic fundamentals of the housing markets. We find that a large fraction of housing market volatility is local. And the local volatilities mostly are due to time-variations of idiosyncratic housing market risk premiums, not local growth. At the aggregate level, the growth and interest rate factors jointly account for up to 47% of the total variations in the price-rent ratio. The rest is due to the aggregate housing market risk premium and a pricing error. We find evidence that the pricing error is related to money illusion, especially at the onset of the recent housing market bubble. The rapid rise in housing prices prior to the 2008 financial crisis was accompanied by both a large increase in the pricing error and a large decrease in the housing market risk premium.

Financial Integration, Housing and Economic Volatility

The Financial Crisis and the Great Recession that followed illustrate the sensitivity of the economy to a housing bust. This paper shows that financial integration both amplified the volatility of housing prices and economic sensitivity to housing-price shocks. We exploit variation credit-supply subsidies across local markets from the Government-Sponsored Enterprises to construct an instrument for housing price changes unrelated to fundamentals. Using this instrument, we find that a 1% rise in housing prices causes a 0.25% increase in economic growth. This effect is larger in localities more financially integrated with other markets through bank ownership ties. Financial integration thus raised the effect of collateral shocks on the economy, thereby increasing economic volatility.

Household Debt, House Prices and Consumption in the United Kingdom: A Quantitative Theoretical Analysis

Household debt and house prices in the United Kingdom rose substantially between 1987 and 2006. In this paper we use a calibrated overlapping generations model of the household sector to examine the extent to which changes in demographics, lower inflation, and a lower long-run real interest rate may explain the build-up of debt and the rise in house prices over that period. Our model suggests that lower real interest rates were particularly important. If households expected lower real interest rates to persist, then the model can more than explain the rise in debt and can explain most of the rise in house prices. However, the model leaves a puzzle because it predicts that an unanticipated fall in real interest rates should lead to a consumption boom that did not materialise in the data.

Is Real Estate Really an Inflation Hedge? Evidence from Taiwan*

This study examines whether Taiwan's housing returns hedge against expected and unexpected inflation. In other words, how well does the rise in housing returns compensate for the costs added as a result of the shrink in wealth and purchasing power? Within the exponential generalized autoregressive conditional heteroskedasticity in mean model framework, we further explore the impact of conditional hetero‐risk on housing return and the influence of asymmetric information on conditional risk. Over the period from 1991 to 2006, the empirical results reveal negative relationships between housing returns and expected as well as unexpected inflation, proving the ineffective inflation hedge of Taiwan's housing investment. The determinant of this phenomenon is the leverage shock between ‘good news’ and ‘bad news’.

Inheritance tax: planning for your family's future

Inheritance tax is no longer a tax just on the rich. The rapid rise in house prices over recent years, combined with inadequate increases in the threshold at which inheritance tax starts, means that more and more people could see their children's inheritance significantly reduced. However, with advance planning you can take action now to ensure your family rather than the government benefits from your estate.

Boom–Bust Cycles and the Forecasting Performance of Linear and Non-Linear Models of House Prices

The tremendous rise in house prices over the last decade has been both a national and a global phenomenon. The growth of secondary mortgage holdings and the increased impact of house prices on consumption and other components of economic activity imply ever-greater importance for accurate forecasts of home price changes. Given the boom–bust nature of housing markets, nonlinear techniques seem intuitively very well suited to forecasting prices, and better, for volatile markets, than linear models which impose symmetry of adjustment in both rising and falling price periods. Accordingly, Crawford and Fratantoni (Real Estate Economics 31:223–243, 2003) apply a Markov-switching model to U.S. home prices, and compare the performance with autoregressive-moving average (ARMA) and generalized autoregressive conditional heteroscedastic (GARCH) models. While the switching model shows great promise with excellent in-sample fit, its out-of-sample forecasts are generally inferior to more standard forecasting techniques. Since these results were published, some researchers have discovered that the Markov-switching model is particularly ill-suited for forecasting. We thus consider other non-linear models besides the Markov switching, and after evaluating alternatives, employ the generalized autoregressive (GAR) model. We find the GAR does a better job at out-of-sample forecasting than ARMA and GARCH models in many cases, especially in those markets traditionally associated with high home-price volatility.

The Bubble Machine: Relative Capital Valuation, Distributive Shares and Capital Gains

The largest part of any explanation of large capital gains must certainly put at center stage the manic hypothesis, most humorously discussed over decades by John Kenneth Galbraith ([1954] 1961; 1994), and dissected most recently, in its psychological dimension by Robert Shiller (2005). Manic asset psychosis develops when, for whatever reason, an asset class acquires some tenable reason for earnings' gains, which in turn, motivate investors to jump in generating capital gains that persuade others now the size of a herd to follow. Losing sight of earnings, the herd, running madly in a deeply leveraged gallop inevitably run off the cliff, when for whatever reason bad news starts to spread or when some of the herd moves off in another direction. The New Economy hype of the 1990s, so adequately described by Shiller, and so nicely captured by Alan Greenspan's term, irrational exuberance, exemplifies the manic situation completely. More recently, the rapid rise in housing prices to income and rents suggests at least the possibility of another manic psychology associated with still another bubbly asset class. The manic hypothesis of capital gains involves feedback loops of demanding herds. It is a demand hypothesis that requires some explanation exogenous to the manic hypothesis itself of the origins of whatever prospective earnings the herd eventually loses track of. In contrast, the present essay inquires into the supply side of recent bubbles by examining institutional and historical factors that tend to further the phenomena of capital gains surrounding stocks and housing the two main asset

The rise of housing in international development: The effects of economic discourse

Since 1945, a growing number of housing experts and development agencies have come to understand that housing investments have a significant impact on economic development. The shift in opinion has been slow and fairly steady, occurring with greatest rapidity in the late 1960s and early 1970s. It was not prompted by an accumulation of new evidence but by shifts in prevailing economic discourse. New theorisations of human capital made it possible to recognise the full social and economic consequences of housing. New theories of flexible production, including the use of subcontracting, led to a revaluation of the house building industry, a key vehicle of housing policy. The higher policy profile of housing still rests on a weak empirical foundation and is vulnerable to shifts in intellectual fashion.

The Housing Lifeline: A Housing Affordability Policy

ousing affordability, particularly for low-income households, is a major public policy concern. This paper considers the basis of the affordability problem and potential solutions. In contrast to other work, we distinguish between long-term and short-term affordability and focus on short-term income fluctuations that may create affordability problems for low-income families. Our goal is not to review existing housing policies for low-income households. Gans and King (2003) includes such a review. Instead we highlight the nature of the short-term affordability problem and consider associated market failures. Our chief contribution is to suggest an innovative policy response — The Housing Lifeline — that uses an income contingent ‘loan’ to fund assistance for low-income households in overcoming problems associated with short-term housing affordability. We consider both the theoretical basis for the housing lifeline and a variety of issues relating to its practical implementation. In particular, we note that a housing lifeline may have a variety of economic benefits relative to existing housing policies. Recent concerns over housing affordability have reflected rising house prices. The Australian Bureau of Statistics (2002) reported that over the three years from July 1998 to June 2001 the weighted average price of existing dwellings in Australia’s capital cities rose by almost 8 per cent per year. While these increases reflect general prosperity in Australia, this prosperity has not been evenly distributed over the population. Rising house prices can lower the affordability of housing to those families who are at the lower end of the income distribution. What, however, is actually meant by housing affordability? How do we judge if low-income families are facing an affordability problem for housing? If there is an affordability problem, is this due to a rise in housing prices relative to other goods and services or a fall in the relative income of the poorest in society? It is well accepted in Australia that governments should take an active stance in alleviating poverty and the hardships faced by low-income families. But an anti-poverty program is different from a housing policy and the linkage between the two may be very weak if an apparent fall in housing affordability for the poor actually reflects a reduction in real income for the poor rather than a rise in the relative price of housing. In the next section of this paper, we discuss the nature of low-income housing affordability, before focusing explicitly on short term affordability issues. We then present and discuss the housing lifeline in detail.

Real Estate and the Macroeconomy

IN JULY 1987 MASSACHUSETTS governor Michael Dukakis began his run for the presidency in the midst of what was being called the Massachusetts Miracle, with employment growing rapidly and an unemployment rate of 2.4 percent. An economy that had experienced 12.8 percent unemployment and an employment base in secular decline in the mid-1970s had become the fastest-growing region in the country just over a decade later. That summer, however, state revenue began to shrink and real estate sales dropped sharply. By the time of the election in 1988, employment was falling, and it continued to fall until the end of 1991. In all, over 360,000 jobs were lost from a peak of 3.2 million, representing more than 11.5 percent of nonfarm payrolls. Employment declines in the other five New England states were comparable. In a development symptomatic of widespread troubles in the region's banking sector, Bank of New England Corporation, with $32 billion in assets, received a CAMEL 5 rating in March 1990 and was closed by the Federal Deposit Insurance Corporation in January 1991.(1) Its closure imposed net losses on the agency of $733 million.(2) The extensive involvement of real estate in both the 1984-88 boom and the 1988-92 bust in New England has been well documented.(3) A dramatic rise in housing prices fueled consumer spending, construction employment expanded more than 50 percent, and overall employment growth was concentrated in population serving establishments.(4) According to call reports (balance sheet reports that banks file each quarter with the Federal Reserve), 72 percent of all bank lending during the boom was collateralized with real estate, and real estate loans accounted for more than 90 percent of Bank of New England's losses.(5) Mortgage default rates and foreclosure rates were high, and losses were severe.(6) Higher vacancy rates, lower rents, and higher capitalization rates (defined below) led to sharp declines in commercial real estate values. Similar real estate involvement in the economic cycle had been documented earlier in Texas and was observed later in California, Alaska, and Hawaii. Today the U.S. economy is in the tenth year of an economic expansion. Both residential and commercial real estate values have been rising steadily across the nation, and the volume of lending collateralized by real estate has grown sharply. This paper explores the involvement of both commercial and residential real estate in the national economic cycle. It considers the role of real estate in the expansion of aggregate demand, the risks to the financial sector from using real estate as collateral, and the distributional consequences of real estate inflation. The Housing Market Table 1 presents some very rough estimates of the size and value of the U.S. housing stock in 1999. The estimates are based on a variety of different but fairly consistent sources. In 1999 there were approximately 103 million housing units occupied year round. About two-thirds of these were owned by their occupants. In addition, 13.4 million units were seasonally occupied or vacant. Of those, 6.1 million were seasonal or for rent. Table 1. U.S. Housing Stock and Residential Mortgage Debt, End of 1999 Units as indicated Average Total Mortgage value value debt Type of Units (thousands (trillions (trillions property (millions) of dollars) of dollars) of dollars) Owner occupied 67.5 132.0 8.9 4.6 Rental(a) 35.0 65.7 2.3 0.5 Seasonal or vacant 13.4 27.5 0.4 ... Total 115.9 ... 11.6 5.1 Sources: Author's calculations based on data from Bureau of the Census, American Housing Survey, 1997; Federal Reserve, Survey of Consumer Finances, 1998; Harvard University Joint Center for Housing Studies, State of the Nation's Housing, 1999; Federal Reserve, Flow of Funds Accounts; Office of Federal Housing Enterprise Oversight, House Price Index, first quarter 2000; and Miles and Tolleson (1997). …

Interest Rates, Housing finance and the Distribution of Income

Examines the changed impact of interest rates on households′ post‐interest disposable income given the rise in house ownership financed largely through mortgage borrowing during the 1980s. Suggests that the high level of mortgage indebtedness now permits a rise in interest rates to curtail consumer spending much more powerfully than was the case at the beginning of the 1980s. Concludes that as a result of changes in building society funding and a rise in personal sector net floating‐rate liabilities, the effect of a unit rise in interest rates is twice as large at the end of the 1980s as it was at the beginning.

CHEAP MONEY AND THE HOUSING BOOM IN INTERWAR BRITAIN: AN ECONOMETRIC APPRAISAL

The author presents an econometric model of housing investment and establishes the quantitative importanc e of cheap money in the British housing boom of the 1930s. Cheap mone y is shown to account for about half of the initial rise in housing i nvestment. In addition, he examines the transmission mechanism by mod eling building society behavior. He shows that it was a fall in the l iquidity ratio, rather than a rise in net deposits, which was the pri mary source of the initial increase in building society advances. Copyright 1987 by Blackwell Publishers Ltd and The Victoria University of Manchester