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André Geis and Ms. Oana Luca
Soaring real estate prices and valuations despite the economic downturn brought by the pandemic have focussed the attention of Dutch policymakers on potential macro-financial and socio-economic implications. In this context, our paper reviews the salient features of Dutch commercial and residential real estate markets with an eye to identify pertinent risks and challenges. While we find that the Dutch authorities have made considerable strides to strengthen real estate-related policies in recent years, some, and partly long-standing, issues remain, requiring additional efforts to bolster financial stability, address housing supply shortages and manage secular changes affecting property markets.
Lucyna Gornicka and Ms. Laura Valderrama
We present a semi-structural model of default risk, which is a function of loan and borrower characteristics, economic conditions, and the regulatory environment. We use this model to simulate bank credit losses for stress-testing purposes and to calibrate borrower-based macroprudential tools. The proposed approach is very flexible and is particularly useful when there is limited history of crisis episodes, when crises bring unanticipated shocks where past tail events offer little guidance and when structural shocks or changes in financial regulations have altered the loan default process. We apply the model to quantify mortgage lending risk in two distinct mortgage markets. For each application, we show a range of modeling adjustments that can be made to capture country-specific institutional features. The model uses bank portfolio data broken down by risk bucket and vintage, which enables us to take explicit account of the loan life cycle and to incorporate the housing and economic cycles. This feature facilitates a timely assessment of banks’ loss-absorbing capacity and the buildup of systemic risk conditional on policy. It also enables counterfactual analysis and the evaluation of macroprudential policy interventions.
Mr. Damien Puy, Mr. Anil Ari, and Ms. Yu Shi
We test whether foreign demand matters for local house prices in the US using an identification strategy based on the existence of “home bias abroad” in international real estate markets. Following an extreme political crisis event abroad, a proxy for a strong and exogenous shift in foreign demand, we show that house prices rise disproportionately more in neighbourhoods with a high concentration of population originating from the crisis country. This effect is strong, persistent, and robust to the exclusion of major cities. We also show that areas that were already expensive in the late 1990s have experienced the strongest foreign demand shocks and the biggest drop in affordability between 2000 and 2017. Our findings suggest a non-trivial causal effect of foreign demand shocks on local house prices over the last 20 years, especially in neighbourhoods that were already rather unaffordable for the median household.
Mr. Julian T Chow
Guyana’s residential real estate prices have been rising, particularly in the capital city Georgetown, following the discovery of oil in 2015. In line with the growing demand for housing, commercial banks’ housing loans have increased, prompting higher household debt. This paper presents two analyses which suggest that housing prices in Georgetown and banks’ lending to the housing sector appear to be in their early stages of growth. However, given the data limitations and caveats that underpin the analyses, the findings could also indicate early signals of possible risks. Further data collection would support surveillance and deeper studies. At the same time, enhancing prudential measures would help safeguard financial and macroeconomic stability. These include strengthening the monitoring of the housing market, bank lending practices and household debt, as well as fortifying the macroprudential framework, including with more effective toolkits for early intervention.
Weicheng Lian
This paper separates the roles of demand for housing services and belief about future house prices in a house price cycle, by utilizing a feature of user-cost-of-housing that it is sensitive to demand for housing services only. Optimality conditions of producing housing services determine user-cost-of-housing and the elasticity of substitution between land and structures in producing housing services. I find that the impact of demand for housing services on house prices is amplified by a small elasticity of substitution, and demand explained four fifths of the U.S. house price boom in the 2000s.
Ding Ding, Xiaoyu Huang, Tao Jin, and W. Raphael Lam
China’s real estate market rebounded sharply after a temporary slowdown in 2014-2015. This paper uses city-level data to estimate the range of house price overvaluation across city-tiers and assesses the main risks of a sharp housing market slowdown. If house prices rise further beyond “fundamental” levels and the bubble expands to smaller cities, it would increase the likelihood and costs of a sharp correction, which would weaken growth, undermine financial stability, reduce local government spending room, and spur capital outflows. Empirical analysis suggests that the increasing intensity of macroprudential policies tailored to local conditions is appropriate. The government should expand its toolkit to include additional macroprudential measures and push forward reforms to address the fundamental imbalances in the residential housing market.
Statistical Office of the European Communities, International Labour Office, International Monetary Fund, Organization for Economic Co-operation and Development, United Nations, and World Bank

Abstract

Para la mayor parte de los ciudadanos, la compra de un inmueble residencial —una vivienda— es la operación más importante de toda la vida. Los inmuebles residenciales hogares y, al mismo tiempo, el activo más valioso. Los índices de precios de inmuebles residenciales (IPIR) son números índice que miden el ritmo al que evolucionan los precios de los inmuebles residenciales con el correr del tiempo. Los IPIR son estadísticas fundamentales no solo para los ciudadanos y los hogares del mundo entero, sino también para las autoridades económicas y monetarias. Entre otras cosas, sirven para vigilar los desequilibrios macroeconómicos. Este Manual presenta por primera vez pautas exhaustivas para la compilación de IPIR y explica en detalle los métodos y las prácticas óptimas utilizados para calcularlos. Asimismo, examina los conceptos económicos y estadísticos fundamenmetodológicas y prácticas para la compilación de este tipo de índice. El Manual está dirigido principalmente a los encargaíndices; al mismo tiempo, atiende la necesidad general de IPIR ofreciendo a todas las partes interesadas en su compilación un marco metodológico y práctico armonizado. El Manual es obra de destacados especialistas en la teoría de números índice y reconocidos expertos en la compilación de estadística de la Unión Europea, con la colaboración del Banco Mundial, la Comisión Económica de las Naciones Unidas para Europa (UNECE), el Fondo Monetario Internacional (FMI), la Organización Internacional del Trabajo (OIT) y la Organización para la Cooperación y el Desarrollo Económicos (OCDE).

Statistical Office of the European Communities, International Labour Office, International Monetary Fund, Organization for Economic Co-operation and Development, United Nations, and World Bank

Abstract

L'achat d'un logement est généralement l'opération financière la plus importante à laquelle un citoyen procédera au cours de sa vie. Le logement représente la plus grande proportion des dépenses des ménages, mais également leur bien le plus cher. Les indices des prix de l'immobilier résidentiel mesurent le taux de variation de ces prix au fil du temps. Ces statistiques sont essentielles non seulement pour les ménages du monde entier, mais également pour les décideurs de la politique économique et monétaire. Parmi leurs utilisations professionnelles, ils servent par exemple à surveiller les déséquilibres macroéconomiques et l'exposition aux risques du secteur financier. Ce manuel, premier du genre, présente des orientations complètes pour l'établissement des indices des prix de l'immobilier résidentiel et explique en détail les méthodes et bonnes pratiques utilisées pour leur calcul. Il examine également les fondements économiques et statistiques sous-jacents, et définit les principes qui orientent les choix méthodologiques et pratiques pour l'établissement des indices. Le manuel est destiné principalement aux statisticiens officiels chargés de produire des indices des prix de l'immobilier résidentiel, ainsi qu'à toute partie intéressée par l'établissement de tels indices, en leur fournissant un cadre méthodologique et pratique harmonisé. Le manuel des indices des prix de l'immobilier résidentiel a été rédigé par d'éminents spécialistes universitaires de la théorie des indices et par des experts de l'établissement de tels indices. Sa préparation a été coordonnée par l'Office statistique de l’Union européenne (Eurostat), avec la collaboration de la Banque mondiale, de la Commission économique des Nations Unies pour l’Europe, du Fonds monétaire international (FMI), de l’Organisation de coopération et de développement économiques (OCDE) et de l’Organisation internationale du travail (OIT).

Statistical Office of the European Communities, International Labour Office, International Monetary Fund, Organization for Economic Co-operation and Development, United Nations, and World Bank

Abstract

For most citizens, buying a residential property (dwelling) is the most important transaction during their lifetime. Residential properties represent the most significant component of households’ expenses and, at the same time, their most valuable assets. The Residential Property Prices Indices (RPPIs) are index numbers measuring the rate at which the prices of residential properties are changing over time. RPPIs are key statistics not only for citizens and households across the world, but also for economic and monetary policy makers. Among their professional uses, they serve, for example, to monitor macroeconomic imbalances and risk exposure of the financial sector. This Handbook provides, for the first time, comprehensive guidelines for the compilation of RPPIs and explains in depth the methods and best practices used to calculate an RPPI. It also examines the underlying economic and statistical concepts and defines the principles guiding the methodological and practical choices for the compilation of the indices. The Handbook primarily addresses official statisticians in charge of producing residential property price indices; at the same time, it addresses the overall requirement on RPPIs by providing a harmonised methodological and practical framework to all parties interested in the compilation of such indices. The RPPIs Handbook has been written by leading academics in index number theory and by recognised experts in RPPIs compilation. Its development has been coordinated by Eurostat, the statistical office of the European Union, with the collaboration of the International Labour Organization (ILO), International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), United Nations Economic Commission for Europe (UNECE) and the World Bank.

Mr. Pau Rabanal, Mr. Christopher W. Crowe, Mr. Giovanni Dell'Ariccia, and Ms. Deniz O Igan
The financial crisis showed, once again, that neglecting real estate booms can have disastrous consequences. In this paper, we spell out the circumstances under which a more active policy agenda on this front would be justified. Then, we offer tentative insights on the pros and cons as well as implementation challenges of various policy tools that can be used to contain the damage to the financial system and the economy from real estate boom-bust episodes.