Global capital markets,housing prices,and partisan fiscal policies

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run‐ups in house prices, whereas most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house price data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly‐provided social insurance because rising house prices allow homeowners to self‐insure against income loss. In contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross‐national surveys that supports these claims, as well as a “before and after” analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.     

THE ROLE OF HOUSE PRICES IN THE MONETARY TRANSMISSION MECHANISM ACROSS EUROPEAN COUNTRIES

This paper provides a discussion of the ‘housing market’ channels of the monetary transmission mechanism and offers some evidence of institutional differences in the European housing and mortgage markets. Using a number of Vector Autoregressive models, estimated individually for nine European countries over the pre‐EMU period, we find that house prices are significantly affected by interest rate shocks. The relative role of these interest‐rate‐induced fluctuations in house prices for private consumption is then investigated. We show that house prices may enhance the effects of interest rate shocks on consumer spending in those economies where housing and mortgage markets are relatively more developed and competitive.     

Capital Inflows and House Prices: Aggregate and Regional Evidence from China

Rising house prices in China have been of concern for investors and policymakers. Prices have risen substantially in the last decade, especially in large urban cities, and some economists have expressed concerns about the affordability of residential housing for young adults. This phenomenon becomes a major concern for policymakers, in terms of managing policies to balance the residential needs of individuals and the transition to a market economy. Theoretically, house prices ought to be linked to economic factors such as disposable income, availability of land to build and credit policy. However, it appears that traditional economic theories fail to appropriately explain house prices in China. We provide an explanation from the perspective of capital inflows into China. In terms of per capita remittances, China receives the highest inflow of foreign capital, and this may have a significant impact on risk adjusted returns in the Chinese market. To investigate this relationship, we use the vector error correction model to assess the impact of capital inflows on house prices. We find that capital inflows have a significant positive effect on house prices. The study makes important contributions to understanding the relationship between house prices and foreign remittances after controlling for other economic factors. China is a large economy. Because the impact of economic development in China has not been consistent across the country, we address the regional differences in the house price changes to capital inflows. Using regional data, we show that capital inflows have an asymmetric effect on the housing market across different provinces and cities of China. This has important implications for the development of economic policies in China that aim to provide fair access to residential housing for everyone. These findings are also relevant to investors in the housing market, whether investing for a personal residential home or as part of their diversified investment portfolio. It will also be informative to see how a reversal of capital inflows associated with tighter financing conditions in advanced countries will affect house prices in China.     

House prices,land prices,the housing market and house purchase debt in the UK and other countries

This paper brings together information about house prices, land prices, housing market transactions, house purchase debt and personal savings for a number of countries and compares them with those in the UK to see to what extent conditions in the UK are unique and how far something similar is to be observed in the countries of Europe and North America     

The drivers of household indebtedness reconsidered: An empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries

Abstract

Household debt is at a record high in most Organisation for Economic Co-operation and Development (OECD) countries and it played a crucial role in the recent financial crisis. Several arguments on the macroeconomic drivers of household debt have been put forward, and most have been empirically tested, albeit in isolation of each other. This article empirically tests 7 competing hypotheses on the macroeconomic determinants of household indebtedness together in one econometric study. Existing arguments suggest that residential house prices, upward movements in the prices of assets demanded by households, the income share of the top 1%, falling wages, the rolling back of the welfare state, the age structure of the population, and the short-term interest rate drive household indebtedness. We formulate these arguments as hypotheses and test them for a panel of 13 OECD countries over the period 1993–2011 using error correction models. We also investigate whether effects differ in boom and bust phases of the debt and house price cycles. The results show that the most robust macroeconomic determinant of household debt is real residential house prices, and that the phase of the debt and house price cycles plays a role in household debt accumulation.     

Fertility and female wages: A new link via house prices

The analysis in this paper explains a new link between fertility and female wages that occurs through the effect of house prices. It is well known that higher female wages have an ambiguous effect on fertility: the positive income effect is offset by a negative substitution effect due to the higher opportunity cost of the maternal time required for child-rearing. Here it is shown that housing costs add a new dimension to this relationship. If the housing needs of children are a sufficiently important cost of child-rearing, then other costs of child rearing such as the opportunity cost of maternal time are rendered relatively less important. Hence the negative substitution effect of higher female wages on fertility is weaker, implying that higher female wages are more likely to boost fertility. This effect is stronger when the housing supply elasticity is high since house prices, and hence the costs of children, are kept in check. The analysis here helps to reconcile empirical observations about fertility, female wages and house prices in a number of countries. For governments concerned about low fertility, policies to increase housing supply elasticity in order to keep house prices in check would be helpful.     

The Real Story of Housing Prices in Australia from 1970 to 2003

Despite the popular and public policy interest in housing prices, there have been few reliable published data for housing prices in Australia. In this article we aim to provide an authoritative account of prices for houses and apartments (units) in Australia from 1970 to 2003. Where possible we draw on data from land title offices or on studies that draw on these data, but we also draw on supplementary data in some cases. The first part of the article describes the major data sources of Australian house prices. The main body of the article provides our best estimates of median house and unit prices and real price indices in the capital cities and in the rest of Australia along with explanations for their derivations. We also estimate how improvements in housing quality have influenced real house prices.     

货币政策对房价的影响：一个文献综述

通过文献资料法和比较分析法，评述有关货币政策对房价影响的研究方法与研究结论。研究成果：（1）房价与利率问题正日益受到各界关注；（2）房价与利率的关系，学者之间研究的结论不相同，有的学者认为利率对房价产生影响，有的学者认为利率对房价没有影响。研究启示：货币政策与房价的关系还需进一步研究，调控政策还需要不断地完善。     

Measuring the social value of local public goods: an empirical analysis within Paris metropolitan area

A non-linear hedonic model is used to estimate the implicit marginal prices of 17 local public goods in a Paris suburban area on an original data set of some 8200 housing units. The results reveal a robust effect of local public school quality (measured both by the fraction of junior high school students that are at least two years behind grade level and the student/teacher ratio) on house prices. It is observed that housing owners’ marginal willingness to pay for reducing commuting time is roughly similar for public transportation than for car transportation. Another noticeable result is the complete capitalization of local taxes at a discount rate of 3.5%. An illustration of the potential usefulness of the results for Cost–Benefit analysis is also provided.     

ECONOMIC GROWTH AND INCREASING HOUSE PRICES

Abstract.  Several cities and countries in Asia and North America have experienced large increases in housing prices. We extend the 1991 paper by S. Rebelo to simulate this situation. We show that growth in real housing prices can result as economic growth persists, even when population growth is zero. Another finding is that reported increases in housing prices might be underestimated. In particular, the growth rate of a relative price index may converge to zero even when house prices in real terms display sustained growth.     

The price effects of joining the euro: modelling the Greek experience using non-linear price-adjustment models

The widely-held hypothesis that accession to the EMU has caused a structural increase in Greek consumer prices is tested. No econometric evidence of such an effect is found. There is strong evidence of (a) multiple structural breaks in the process driving Greek equilibrium consumer prices and (b) non-linear price adjustment. The findings explain the post-EMU accession acceleration in Greek prices as normal, equilibrium-restoring behaviour. They also have important policy implications for the countries planning to join the euro in the foreseeable future.     

Housing Wealth Effects: Cross‐sectional Evidence from New Vehicle Registrations

We investigate the relationship between housing wealth and consumption using postcode‐level variation in house prices and administrative data on new passenger vehicle registrations as a proxy for consumption. We find a robust cross‐sectional relationship, and in our preferred specification estimate an elasticity of new passenger vehicle registrations with respect to gross housing wealth of 0.4–0.5, which based on our preferred calibration implies a marginal propensity to consume for total consumption of less than 0.5 cents. Notably, we find evidence that the relationship between house prices and new vehicle registrations is heterogeneous in income.     

Explaining House Prices in Australia: 1970–2003*

This paper aims to explain changes in real house prices in Australia from 1970 to 2003. We develop and estimate a long-run equilibrium model that shows the real long-run economic determinants of house prices and a short-run asymmetric error correction model to represent house price changes in the short run. We find that, in the long run, real house prices are determined significantly and positively by real disposable income and the consumer price index. They are also determined significantly and negatively by the unemployment rate, real mortgage rates, equity prices and the housing stock. Employing our short-run asymmetric error correction model, we find that there are significant lags in adjustment to equilibrium. When real house prices are rising at more than 2 per cent per annum, the housing market adjusts to equilibrium in approximately four quarters. When real house prices are static or falling, the adjustment process takes six quarters.     

An in-sample and out-of-sample empirical investigation of the nonlinearity in house prices of South Africa

This paper tests whether housing prices in the five segments of the South African housing market, namely large-middle, medium-middle, small-middle, luxury and affordable, exhibit non-linearity based on smooth transition autoregressive (STAR) models estimated using quarterly data from 1970:Q2 to 2009:Q3. Findings point to an overwhelming evidence of non-linearity in these five segments based on in-sample evaluation of the linear and non-linear models. We next provide further support for non-linearity by comparing one- to four-quarters-ahead out-of-sample forecasts of the non-linear time series model with those of the classical and Bayesian versions of the linear autoregressive (AR) models for each of these segments, for the out-of-sample horizon 2001:Q1 to 2009:Q3, using the in-sample period 1970:Q2 to 2000:Q4. Our results indicate that barring the one-, two and four-step(s)-ahead forecasts of the small segment, the non-linear model always outperforms the linear models. In addition, given the existence of strong causal relationship amongst the house prices of the five segments, the multivariate versions of the linear (classical and Bayesian) and STAR (MSTAR) models were also estimated. The MSTAR always outperformed the best performing univariate and multivariate linear models. Thus, our results highlight the importance of accounting for non-linearity, as well as the possible interrelationship amongst the variables under consideration, especially for forecasting.     

Persistence,mean reversion and non-linearities in the US housing prices over 1830–2013

The objective of this study is to provide a direct estimate of the degree of persistence of measures of nominal and real house prices for the US economy, covering the longest possible annual sample of data, namely 1830–2013. The estimation of the degree of persistence accommodates for non-linear (deterministic) trends using Chebyshev polynomials in time. In general, the results show a high degree of persistence in the series along with a component of non-linear behaviour. In general, if we assume uncorrelated errors, non-linearities are observed in both nominal and real prices, but this hypothesis is rejected in favour of linear models for the log-transformation of the data. However, if autocorrelated errors are permitted, non-linearities are observed in all cases, and mean reversion is found in the case of logged prices, though given the wide confidence intervals, the unit root null hypothesis cannot be rejected in these cases.     

Monetary valuation of aircraft noise: A hedonic analysis around Amsterdam airport

In densely-populated countries and in particular in large metropolitan areas, the presence of so much human activity causes all sorts of negative externalities, for example traffic noise disturbance. These externalities call for corrective measures by the government. Economists have developed a number of procedures that provide reasonable estimates on the monetary value of some amenities and externalities. In this paper we develop a spatially-explicit hedonic pricing model for house prices in order to quantify the social cost of aircraft noise disturbance in monetary terms. While focusing on aircraft noise around Amsterdam airport in the urban fringe of the Amsterdam region, a key point in our analysis is that we account for background noise. We do this by taking multiple sources of traffic noise (i.e. road, railway and aircraft noise) into account simultaneously and by setting threshold values for all three sources of noise above which sound is generally experienced as nuisance. Based on our regression results we conclude that a higher noise level means ceteris paribus a lower house price. Air traffic has the largest price impact, followed by railway traffic and road traffic. These model outcomes can subsequently be used to estimate the marginal and total benefits of aircraft noise reduction in the studied area around Amsterdam airport. We find a marginal benefit of 1 dB noise reduction of 1459 Euro per house, leading to a total benefit of 1 dB noise reduction of 574 million Euros.     

Canadian city housing prices and urban market segmentation

Abstract .  This paper provides a detailed empirical analysis of Canadian city housing prices. We examine the long-run relationship between city house prices in Canada from 1985 to 2005 as well as idiosyncratic relations between city prices and city-specific variables. The results suggest that city house prices are only weakly correlated in the long run and that there is a disconnect between house prices and interest rates. City-specific variables such as union wage levels and the issuance of building permits tend to be positively related to existing city house prices. Surprisingly, there is mixed evidence with respect to standard measures of economic activity such as per capita GDP and interest rates.     

The Role of Chonsei as a Price Protector in the Korean Housing Market

In this study, we investigate whether ‘Chonsei,’ the distinctive type of housing contract system in Korea, has a favorable impact on house prices during a market downturn. We show the mechanism in which Chonsei prevents a sharp drop in house prices based on sellers’ loss aversion behavior. Moreover, using data on the Seoul condominium (i.e. apartment) market during the 2006–2017 period, we find that Chonsei prices have a negative impact on the housing trade volume in a market recession. This finding is consistent with our argument that loss aversion behavior appears with regard to the rise in Chonsei prices and thereby Chonsei functions as a price protector in the Korean housing market.     

Perceived inflation and the euro: Evidence from an Austrian survey

This paper employs an Austrian micro-dataset to analyze why inflation perceptions became disconnected from official inflation measures in the course of the euro cash changeover. We find evidence that persons who are more often confronted with prices, who expected price increases and who mentally convert euro prices into old currency prices when making price comparisons have a significantly higher perception of inflation. Furthermore, our results indicate that the latter two factors have a persistent impact. This contributes in explaining why price perceptions have not normalized for several years in some countries. The results suggest that policy measures in countries which are going to introduce the euro should address these issues in order to prevent a similar development as experienced in many euro area countries.     

Wealth Effects,Local Area Attributes,and Economic Prospects: On the Relationship between House Prices and Mental Wellbeing

This research exploits large variations in local house prices to investigate whether house prices correlate with mental wellbeing, and uses contrasting implications for the effect of house prices on the mental wellbeing of homeowners and renters to shed light on why this correlation might arise. I document a positive correlation between house prices and the mental wellbeing of both homeowners and non‐homeowners, which is inconsistent with a pure wealth effect. Instead this finding suggests that local house prices provide a reflection of available amenities and economic opportunities in the area.