The Global House Price Boom Could Haunt The Recovery From Covid-19
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The Global House Price Boom Could Haunt The Recovery From Covid-19

Decreasing affordability raises both financial and political risks.

By Mike Bird
Mon, May 17, 2021 11:10amGrey Clock 3 min

The year of the pandemic saw the largest increase in global house prices since the U.S. housing boom of the mid-2000s. And there is no sign the rally is coming to an end.

That provides immediate economic support for the global recovery from Covid-19. But a prolonged house price upswing would mean big new problems for both financial stability. And it could result in economic strife if middle-class citizens accustomed to a one-way housing bet suddenly find the rug pulled out from beneath them down the line.

House prices rose by 4.91% across 16 economies monitored by the Federal Reserve Bank of Dallas last year, the sharpest increase since 2006. The move was large by the standards of a normal year—but explosive in the context of a global economic contraction of around 3.3%.

And the trend shows little sign of abating. The U.S. housing market is millions of homes short of buyer demand. Prices have climbed in places as varied as the eurozone, South Korea, Australia, New Zealand and Canada.

Booming prices reflect a major difference between the liftoff from the financial crisis of 2008 and the nascent post-pandemic boom. The financial crisis emanated from a fragile, undercapitalized banking sector: The obvious postcrisis response was to lend much more conservatively. But at the beginning of last year, banks were far less overextended and, with greater government support, were much more rapidly able to pass on interest rate cuts to borrowers.

At the same time, banks are far more exposed to housing markets than they once were. Across 18 advanced economies, mortgage lending has grown from around a third of total bank lending in 1960 to very nearly 60%. The financial crisis seems to have only been a brief speed bump in this secular trend.

The experience of countries that didn’t have a major banking crisis in 2008 shows what could happen on a far larger scale now. Most countries with large run-ups in household debt during the last decade—China, South Korea, Thailand, Canada and Sweden—were places where banks didn’t suffer in 2008. And rather than the brief, one-off increase in leverage of the kind many analysts expect following the pandemic today, household borrowing climbed continually over the following decade.

Many such countries have attempted to slow down rapid increases in house prices. The Korean government has enacted dozens of individual tweaks to tax and lending regulations. The latest Canadian federal budget announced a tax on vacant and underused property owned by foreigners, following existing levies in Vancouver and Toronto. So far, few measures have had an impact large enough to stall the boom.

Earlier this year, Swedish central bank governor Stefan Ingves compared the household debt situation to sitting on a volcano. The analogy is apt, given how sensitive the health of economies is to increased leverage among households in particular. Economists Atif Mian, Amir Sufi and Emil Verner have published research demonstrating that burgeoning household debt tends to slow down economic growth.

That’s not to say there’s nothing to be done. There have been a small number of successes in controlling and preventing house price booms to note. They bear much closer examination for policy makers in the rest of the world.

Japan’s case is the most obvious. The country’s lack of zoning restrictions and rent controls are regularly credited with the country’s flat home prices, particularly in Tokyo where the total population is still increasing. All the same, making fair international comparisons is difficult because interest rates have been so much lower than other parts of the world for so much longer, and overall economic growth has been so weak.

According to a study published in the Journal of Housing Economics in 2018, Singapore’s flurry of efforts to cool house prices between 2009 and 2013 also seems to have helped to stall the country’s buoyant house price growth. The measures included higher taxes on home-flipping, higher deposit requirements for second-time buyers, longer residential loan terms, and caps on the amount of a borrower’s income that could be spent on home loan repayments. But Singapore is also an example of how difficult such progress is to defend: Prices jumped to a new record in the first quarter of the year. And Singapore’s market is unique in other respects—the lion’s share of housing is publicly developed for Singaporeans to purchase, and homeownership rates are among the highest in the world.

There are other areas to look at. Outright taxes on the value of houses, the land beneath them, or both are popular with economists but have yet to find their way into public policy in most parts of the world. Even without such radical steps, fixing other positive biases housing receives in tax systems around the world would be a good start.

Dealing with an asset that is a totemic symbol of middle-class security and the main source of household wealth but is also a major financial stability risk is an unenviable task for policy makers.

But with many parts of the world already in the foothills of a new house price boom, it’s an issue that must be considered urgently if they want to avoid the mistakes of the past.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 8, 2021



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35 North Street Windsor

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It’s a slam dunk as a covetable $2m KDR site complete with basketball court hits the market in the Hills District

The ball is in the buyer’s court with this knockdown/rebuild opportunity

By KANEBRIDGE NEWS
Tue, Apr 18, 2023 2 min

Glenhaven in Sydney’s Hills District is one of those areas that locals tend to keep to themselves. Leafy with large blocks on offer, the suburb takes its name from its valley location, with the northern end originally known as the Glen and the southern end called the Haven. 

En route from Parramatta to the Hunter, Glenhaven has become an ideal place for growing families in search of a little more space, or even room to house several generations under one roof.

The challenge is finding properties that tick all the right boxes.

As demand for trades and supply chain issues continue to ease, now could be the right time for a knockdown/rebuild project for would-be buyers looking to create their dream home.

Fairmont Homes specialises in knockdown/rebuild projects in Sydney. General manager at Fairmont Homes, Daniel Logue, said there are key features to look for when choosing a knockdown/rebuild site.

“The key items we look for are the site falling to the street, not to the rear, to help with stormwater drainage as well as access to the site,” he said. “Neighbouring property front setbacks are also important. In some older areas, the older houses are set closer to the street, meaning your new home will have to be set to suit.

“Value for money and the return on the end sale price of the home is another issue.”

If possible, he said designing a home that meets the criteria of the Complying Development legislation will speed up approvals considerably.

While suitable knockdown/rebuild sites can be hard to find in Glenhaven, there are still hidden opportunities if you know where to look.

One block at 158 Gilbert Road, Glenhaven is ideally suited for rejuvenation. With almost 850sqm to play with, it slopes down to the street and sits between neighbouring properties that have already been stylishly updated.

 

 

An existing basketball court at the rear could provide the perfect teen backdrop to a family home, or it could make way for a larger house with landscaped gardens and pool. Alternatively, it could be the perfect position for a cabana or granny flat to serve as in-law accommodation or a source of secondary income.

With recent sales of completed homes in nearby streets reaching well above $5 million, it’s a great opportunity to make a slam dunk of a buy into one of Sydney’s best kept secrets.

Address: 158 Gilbert Road, Glenhaven
Price guide: $1.8 million
Inspection: By appointment only
Contact: William Brush, LJ Hooker Dural 9651 1566 

 

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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