Housing Finance and Deregulation: Predictions and Outcomes

This article explores the extent to which the deregulation of the Australian financial system over the past few years has borne out the claims of the Campbell and Martin Reports with regard to housing finance. It concludes that claims that there would be an increase in the availability of finance were optimistic but that claims that the effective rate of interest would not increase have been vindicated. It also concludes that the most significant innovations which have taken place have come, not from the private sector as predicted, but from the public sector.     

Non-Price Barriers to Home Ownership*

The impact of regulation of the nominal rate of interest for mortgages in the Australian market for housing finance is examined under inflationary conditions. It is argued that the neglected distributional consequences of the induced tightening of non-price rationing of funds militate against the availability of housing finance to low income groups and first home buyers. Policy to increase availability should take account of the institutional features of the mortgage contract.     

The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home-Mortgage Interest Rate ReguIation*

Judy Yates (1981) notes the regressive redistributive impact of home-mortgage interest rate regulation and offers some explanations. This paper provides an alternative explanation of Yates' observations in terms of the interaction of inflation with the current tax system in Australia. A model of tenure choice in the context of inflation and taxation is developed. In explaining this phenomenon, the model also establishes the regressive nature of the tax subsidy to owner-occupation. Home-mortgage interest rate regulation is then introduced. This reinforces the redistributive bias in the housing finance market. The model is used finally to predict the impact of deregulation. It is concluded that deregulation by itself can only remove redistributive bias resulting from regulated mortgage interest rates. Reform of the tax system is required to eliminate the regressive redistributive effects of the tax subsidy to owner-occupation .     

Effects of U.S. Banking Deregulation on Unemployment Dynamics

I use state-level banking deregulation in the U.S. to study the causal impact of credit expansion on unemployment through its effects on the average monthly job-finding and job-losing rates. State-level analysis shows that deregulation increased the average job-finding rate and decreased the job-losing rate, and thus led to a lower unemployment rate. I also find that deregulation decreased the average unemployment duration. Extending the analysis to industry-state level, I find that the impact of deregulation on the job-finding rate is positive, but does not show any pattern across industries with respect to their needs for external finance. However, deregulation reduced the average job-losing rate, and the reduction monotonically increases with industries’ dependence on external finance.     

Mortgage contracts in a general equilibrium model when there are inflation shocks

This paper examines the general equilibrium effects of anticipated and unanticipated inflation shocks when an asset such as housing is financed by long-term contracts. Unlike other analyses of housing and mortgage finance, this model specifies that financial markets are fully integrated. Within a simple three-period overlapping generations model, agents obtain a mortgage in the first period and maximize utility under the constraint that no borrowing for consumption is allowed. Following inflation shocks, transition paths of endogenous interest rates, house prices, and welfare can be traced in simulations of the economy under the assumption of rational expectations. When nominal contracts prevail, an unexpected increase in the inflation rate causes a decline in the real rate of interest, owing to adjustments in the loanable funds market. Thus, real effects emerge even in the absence of tax distortions or explicit modelling of uncertainty. I contrast these real effects, given loans in the form of adjustable rate mortgages, with the absence of such effects when loans are price-level-adjusted mortgages.     

House price,mortgage premium,and business fluctuations

This paper investigates the transmission mechanism of mortgage premium to characterize the relationship between the housing market and business cycle for the U.S. We find that mortgage premium is crucial for the amplification and propagation of the model to match the main properties of U.S. housing market and business cycles. The counterfactual analysis suggests that had the Federal Reserve raised the interest rate in 2003Q1, it would have curbed the housing market boom before the crisis, yet failed to alleviate the precipitous decline in housing market activity after the crisis. Moreover, the pre-emptive monetary policy aimed to contain the housing market boom can effectively lower volatilities of major economic aggregates; however, it also exerts a significantly negative effect on the levels of these economic aggregates. Thus, using monetary policy to stabilize asset price inflation involves a trade-off between the volatility and the level of economic activity.     

An Endogenous Growth Model of a Financially Repressed Small Open Economy

The paper develops a monetary endogenous growth model of a financially repressed small open economy, characterized by curb markets, capital mobility, transaction costs in domestic and foreign capital markets, and a flexible exchange rate system, to analyze the impact of financial liberalization – interest rate deregulation and lower multiple reserve requirements – on growth and inflation. When the model is calibrated to match world figures, we find that interest rate deregulation enhances growth and reduces inflation in steady-state. For relatively smaller transaction costs in the curb market, the above result is, however, reversed. Under such circumstances, lowering the transaction costs in the foreign capital market tends to restore the growth-enhancing (inflation-reducing) capabilities of interest rate deregulation. Lower reserve requirements, though, always ensures lower (higher) steady-state inflation (growth).     

中国的利率管制与利率市场化

中国政府的金融约束政策在维系金融体系稳定、促进经济发展和金融深化等方面曾取得令世人瞩目的成就 ,但利率管制的金融约束政策也付出了一定的代价。随着中国加入WTO的临近和中国金融市场的开放 ,利率市场化已经成为历史的必然 ,然而目前实施利率市场化仍然存在着众多的约束。只有解除这些约束 ,中国利率市场化改革方可稳健地进行     

An Analysis of the Distributional Impact of Imputed Rent Taxation*

This paper examines the short-run distributional implications of withdrawing the implicit subsidies which accrue to owner-occupiers through the non-taxation of their imputed income. It is argued that the distributional implications of taxing imputed income from owner-occupied housing depend on the interaction of house value, equity and income over the life cycle of the owner-occupier and that a failure to take all of these factors into account could result in a policy of imputed income taxation having unintended distributional effects within the owner-occupied sector. The revenue gained from the introduction of such a policy, however, would be more than adequate to offset these effects.     

Inflation,taxes and housing: A theoretical analysis

This paper examines the real effects of inflation under a distortionary tax system. The presence of a tax subsidy to housing substantially alters the effects of inflation on the capital intensity of production and on the market interest rate. The analysis suggests that not taxing the flow of services from housing has caused inflation to reduce capital intensity, thereby decreasing U.S. productivity. Furthermore, this tax subsidy has caused inflation to raise the real interest rate while reducing the after-tax real returns to assets.     

Testing for rational bubbles in the US housing market

The presence of a bubble in the US housing market prior to the 2007 subprime mortgage financial crisis is investigated. This is done by looking into the relationship between house prices and rental prices, known as the price–rent ratio, which is an important measure of a potential deviation between house prices and its fundamental value. Additionally, the interest rate is taken into account since it is an important factor in determining demand for housing mortgages and thereby influencing house prices, and explosive behavior of house prices is considered. These relationships are investigated through a theoretical and econometrical framework. The empirical evidence suggests that there was a bubble in the housing market prior to the financial crisis, even when controlling for the decreasing interest rate and the fundamental information given by the rental price in the period. Explosiveness was the main source of the price increase, such that a bubble was present in the housing market after correcting for other fundamental factors. The econometric procedures used in the analysis may therefore be relevant for monitoring the housing market.     

The housing market and excess monetary liquidity in China

This study investigated the performance of the housing market in China, determining that from a long-term perspective, an equilibrium relationship exists between housing prices and output. However, the housing market may not be efficient in the short run. Based on the correlation between housing returns and the economic growth rate, 3 distinct states can be discerned in the performance of the Chinese housing market. The first state is a bubble period, during which housing returns are excessively high and negatively correlated with the economic growth rate; the second state is a correction period, during which housing prices are corrected toward market fundamentals; and the third state is a calm market period, during which no substantial performance or trends manifest. This study determined that excess monetary liquidity significantly influenced the housing market states; however, no such effect was observed when the interest rate was adjusted. Thus, the findings implicate that if the People’s Bank of China intends to avoid losing control of the housing market, it should exercise monetary control to avoid excess liquidity in the housing market.     

Empirical analysis of the monetary policy transmission through interest rate channel in China

With the deregulation of interest rates in China, the interest rate channel of monetary policy transmission is becoming more and more important. Firstly, this paper makes empirical studies on the transmission mechanism in China represented by the conventional interest rate channel of monetary policy transmission by using the Granger causality test. The result shows that there is no causality neither between investment expenditure and the market interest rate nor between household consumption and the market interest rate, which suggests that the transmission of monetary policy in China is impeded. Then the reasons from three aspects including interest rate liberalization, asset-backed securitization and household consumption behavior are analyzed.     

Implications of Singapore's CPF Scheme on Consumption Choices and Retirement Incomes

Singapore has a unique policy of allowing the use of mandatory social security contributions to finance homeownership. An intertemporal model of housing demand is employed to demonstrate analytically that the CPF scheme can distort an individual's intertemporal and intratemporal consumption choices, and induce Singaporeans to demand more housing than they would otherwise. The withdrawals for housing have also affected the adequacy of CPF balances for financing retirement. Pegging the rate of return on CPF balances to a long‐term rate is the long‐term solution to curbing excessive withdrawals for housing, and ensuring the adequacy of CPF savings for financing retirement.     

房地产税、市场结构与房价

本文在住房流量模型的基础上,构建了一个购房者和开发商的住房市场局部均衡模型,考察了完全垄断和完全竞争情形下房地产税与房价之间的关系。结果表明,无论何种市场结构,提高房地产税均导致房价下降;住房市场垄断性越强,房价越高,房地产税对房价影响越大。笔者对1996-2008年中国33个大中城市数据的检验发现,市场结构对房价影响大于房地产税。房地产税增长率每增加1%,房价增长率将减少0.03%;勒纳指数每增加1%,房价增长率将增加0.16%。房地产税与市场结构相互作用将使房价上涨,但影响微不足道。因此,对住宅开征房地产税,将对房价上涨有一定限制作用,但不能有效抑制房价上涨,而增强住宅市场竞争性、降低开发商垄断具有显著效果。     

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.     

HOUSING AND HOUSING FINANCE IN AN ERA OF INFLATION AND DISINFLATION: INTRODUCTION

So far, the 1980s have been the decade of disinflation in the housing market. The United States has experienced four remarkable years during which house prices have declined in real terms, and, at least in some markets, in nominal terms as well. At the same time, mortgage interest rates have risen to unprecedented levels, and the housing finance system has experienced extraordinary stresses, which are contributing to a remarkably rapid process of fundamental structural change. This comes immediately after a 15-year period of variable, but persistent and accelerating inflation, culminating in a speculative housing boom from 1977 to 1979.     

利率上调对中国住房市场影响的动态分析

构建一个简单的住房需求供给模型,从未预测到中国人民银行对利率上调和已预早测到中国人民银行要对利率进行上调两方面来分析利率上调对中国住房市场的影响。研究结果表明,利率上调通过影响住房市场供求和房租这两个途径来影响中国的住房市场,并且当住房价格上升过快时,利率上调可以作为一个调控中国房价的有效手段。     

Growth,deregulation and rent seeking in post-war British economy

Post-war political consensus about the need for government action to rectify market failure began to unravel in the 1970s, and even the need for prudential control of banking and finance began to be challenged by the start of the 1980s. Regulatory oversight was relaxed in the belief that emerging techniques in financial engineering would render irrelevant fears of sharp periodic downturns that have historically been the consequence of lightly regulated finance. The outcome of this new policy, embracing the idea of unregulated markets to deliver greater prosperity, is disappointing. We find that the average growth rate of UK GDP and output per person employed for three decades from the start of liberalization was no greater than that in the previous three post-war decades. Cyclical fluctuations were deeper. A remarkable feature of the second period is the sharp rise in income inequality in favour of the very top earners. An illusion of greater prosperity for a wider segment may have been created in the second period due to asset price bubbles and housing inflation.     

信息披露机制对私营企业融资决策的影响

本文通过实证研究检验了一个有关私营企业融资决策的假说 ,即如果不考虑资本市场资金拆借的利息成本和执行成本 ,那么影响私营企业融资决策的主要因素将是各层级资本市场要求的信息披露机制。检验结果支持了本文的论点 ,即越是高层级的资本市场 ,要求私营企业披露的有关经营方面的信息就越多 ,而在现阶段 ,经营信息的披露会给私营企业带来潜在的经营风险。因此 ,私营企业更多地依赖低层级资本市场提供的资金支持