Do we need another approach to housing policies? By Christophe André, OECD Economics Department

1. Do we need another approach to housing policies?
Housing Europe – Finance Watch conference
Housing Finance – It’s a choice !
Property bubbles or social and ecological resilience?
Brussels, 5 November 2014
Christophe André
OECD Economics Department
1

2. An exceptional global housing price boom
Real housing prices, 1995=100
2
Source: OECD and National sources.
050100150200250300350United StatesGermanyFranceUnited KingdomCanadaIrelandSpain

3. Current housing price orientation in OECD countries
(as of September 2014)
3
Source: OECD and National sources.
Continued fall
Greece (-42), Italy (-23), Spain (-38), Slovenia (-27)
Moderate fall
France (-6), Finland (-3), Japan (-9), Portugal (-10)
Broadly stable
Belgium (+3), Czech Republic (-11), Denmark (-27), Hungary (-34), Korea (-3), Luxembourg (+7), Mexico (- 1), Netherlands (-24), Slovakia (-28)
Moderate increase
Austria (+22), Canada (+14), Germany (+18), Norway (+13), Sweden (+4), Switzerland (+26)
Firm recovery
Estonia (-34), United Kingdom (-9), Iceland (-27), Ireland (-44), New Zealand (+1), United States (-18)
Rapid increase
Australia (+8), Israel (+58)
In parenthesis, percentage change in real housing prices relative to peak in 2006-08.

4. Gross household debt is high in many countries
As a percentage of net disposable income
4
Source: OECD National Accounts Statistics.
0
30
60
90
120
150
180
210
240
270
300
330
360
2012 or latest available year
2007

5. Credit risk
Generally moderate
But some cases of high risk lending (e.g. US, Hungary, Iceland)
Defaults resulting from a sharp deterioration in macroeconomic conditions (e.g. euro area periphery) Funding risk
Maturity mismatch (e.g. UK, Netherlands)
Currency mismatch (e.g. Iceland, some Central and Eastern Europe countries) Macroeconomic risk
Fall in consumption (e.g. US, UK, Denmark)
Reduction in residential investment
Second round impact on the economy and the financial sector
What are the risks associated with high/growing household debt?
5

6. Arrears in Spain
Percentage of non-performing loans for house purchase (>30 days in arrears)
6
Source: Bank of Spain.
0123456719899091929394959697989920000102030405060708091011121314

7. Construction has collapsed in many countries
Housing starts
7
Source: European Mortgage Federation.
0
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
1.600.000
1.800.000
2.000.000
UK
France
Spain
USA
2001
2006
2012 (2011 for UK)
0
20.000
40.000
60.000
80.000
100.000
120.000
140.000
2001
2006
2012 (2011 for Norway)

8. Housing cost overburden rate by tenure status, 2012
Percentage of the population living in a household where the total cost of housing exceeds 40% of equivalised disposable income
8
Source: Eurostat.

9. Demand side:
Financial regulation and supervision
Tax systems often encourage home-ownership. Mortgage interest deductibility can be costly and tends to be regressive. If supply is rigid, capitalisation of tax advantage in housing prices Supply side:
Zoning and planning regulations are often excessively tight
Infrastructure investment is sometimes insufficient
Supply of new affordable/social housing is often low (partly because of costs and potential side-effects – segregation, weakening work incentives and mobility)
Private rental market regulations (rent control, balance of protection of tenant and landlord rights) are hampering the development of the rental market in some countries
A holistic approach to housing is needed
9

10. Monitoring of housing market developments and their macroeconomic impact: Economic Outlook http://www.oecd.org/eco/economicoutlook.htm
Structural policies: Housing and the Economy (2011) http://www.oecd.org/eco/growth/housing-and-the-economy.htm
Special chapters on housing in Economic Surveys http://www.oecd.org/eco/surveys/
Case study on the private rental market (Czech Republic, Finland, Germany, Netherlands): de Boer and Bitetti http://dx.doi.org/10.1787/5jxv9f32j0zp-en
Social policies for housing (ongoing project)
Cities http://www.oecd.org/gov/regional-policy/urbandevelopment.htm
Selected OECD references on housing
10

11. Housing markets have become increasingly volatile over the past decades. High household debt may entail risks for households, the financial system and the wider economy -> Need for adequate financial regulation and supervision.
First-time buyers are increasingly excluded by high prices and deposit requirements -> But improving access to finance and providing demand-side subsidies is not enough (and can prove counterproductive).
Access to decent housing is increasingly problematic for some segments of the population in many countries, which has deep social and economic consequences -> Housing policies are only part of the solution.
Structural features of housing markets (e.g. land-use planning, taxation, regulations) can both limit the availability of decent housing and generate financial and macroeconomic instability -> A holistic approach to housing issues is needed.
Conclusions
11

12. Thank you!