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Prepared by Carolina Osorio Buitron and Stephanie Denis.
This phenomenon reflects a stock problem. While household formation continuously outstripped supply in the decade leading to 2008, more recently the construction of new dwellings has kept pace with household growth.
Most land in Israel is state-owned and only offered to the public via long-term leases.
The time elapsed between the moment when the ILA decides to convert land into land for development, and the moment when the building permit is granted is estimated to be 11 years.
The contribution of each variable is calculated as the product of the corresponding cointegrating vector coefficient and the variable’s deviation from its long-run average (or steady state value).
The swing in residential investment further contributes to the boom-bust cycle. In the United States, residential investment contributed about 0.5 percentage points annually during the boom years, but subtracted, on average, 0.9 percent annually during the subsequent bust.
The group of “supply-constrained” countries was selected using three criteria: above average population density, above average duration in the process of building permit issuance, and long-run supply elasticity estimates below 0.7. The latter were taken from Caldera Sánchez, A. and Å. Johansson (2011).
These results rely on estimates from a VAR model, which includes annual growth rates of real private consumption, real GDP and lagged real house prices, as well as the real policy rate.
These forecasts are based on the VAR estimates, and were obtained using the Gauss-Seidel solution technique.
The latest changes to macroprudential regulation were instituted in August 2013. This exercise is based on a monthly sample spanning from January 2004 to August 2013. Hence, by construction, it is not yet possible to assess the impact of the latest measures.