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See Girouard and others (2006), Egert and Mihaljek (2007), Kholodilin and Ulbricht (2015), and Geng (2018).
Note that such requirements are expected to phase in step-by-step from 2013 until full implementation by 2019, although many countries have opted for earlier full implementation.
Bulgaria, Estonia, the Netherlands, Norway, Romania, Slovakia, and Sweden apply one buffer to all banks; Hungary vary systemic risk buffers by the institution’s exposure to commercial real estate loans.
In the case of the UK, the Prudential Regulation Authority set certain criteria, based on EU law, that make it harder for firms to use the preferential risk weight of 50 percent for CRE [please spell out CRE] exposures. Instead, firms have to apply the default risk weight for CRE if they don’t meet these criteria.
Buchak and others (2017) find that in the US, tightening bank regulatory constraints is associated with a significant expansion of the shadow bank market share. This expansion is supported by technological progresses.
Cross-border bank loans to Central Europe rose from about 10 to 30 percent of GDP from 2002 to 2008, while those to Southeastern Europe rose from about 10 to 80 percent of their GDP (Annex I, Kang and others 2017).
These macroprudential measures included (1) an increase in risk weights for mortgage loans from 50 to 100 percent, (2) an increase in reserve requirements from 13 to 15 percent, and (3) an extension of the reserve requirement base.
Choi, Kodres, and Lu (2018) argue that cross-country coordination of macroprudential policies could reduce the probability of banking crises.
A buffer activated in one country requires supervisory authorities in all countries to apply the same buffer on their banks’ exposures into the host country (as long as the buffer does not exceed 2.5 percent of risk-weighted assets).
The ESRB goes beyond CRR/CRD IV to recommend the reciprocation of buffer rates higher than 2.5 percent (ESRB 2017).
Article 458(5) CRR foresees (mandatory) reciprocation by other member states only for exposures taken by branches but not for exposures held directly across borders.
Some member countries reciprocated only for branches or exempted individual institutions from reciprocation. Also, some member countries decided not to reciprocate these, citing the lack of material exposures (ESRB 2017).
Besides tax preferences, other forms of government support to homebuyers include grants to home buyers, subsidized mortgages and mortgage guarantees for home buyers, and/or mortgage relief for over-indebted homeowners (OECD Affordable Housing Database Public Spending on Financial Support to Home Buyers).
Neutral taxation of owner-occupied housing would require full taxation of imputed rents and capital gains on housing, combined with mortgage interest deductibility (Keen, Klemm, and Perry 2010).
The empirical literature is inconclusive as to the effect of interest tax deductibility on real estate cycles (see Crowe and others 2013).
In Hungary, on the other hand, a lower value-added tax currently applies to the sale of certain types of dwelling, which contribute to the recovery in the real estate market. Aregger, Brown, and Rossi (2013) find no effect of transaction taxes or capital gains taxes on house price dynamics in Switzerland.
As discussed by Osorio-Buitron and Denis (IMF 2013a), cross-country comparisons of housing valuations should internalize the effect of supply rigidities, because house prices tend to raise faster in the presence of supply constraints. One way to address this issue is to express deviations of the price-to-income and price-to-rent ratios from their long-term average in percentiles.
Supply-side subsidies are directed at producers of housing and can consist of direct government grants or subsidies, and land and tax concessions for provision of housing.
Demand-side subsidies are directed at consumers; common forms of demand-side housing subsidies include housing allowances, upfront grants for homebuyers, financial assistance such as subsidized interest-rate loans or mortgage guarantees and of course mortgage and property tax relief.
Based on the OECD Affordable Housing Database (OECD 2016a, pg.1), in 2015, public spending on housing allowances is the highest in the UK at 1.4 percent of GDP, followed by France and Finland. In the case of Denmark, Germany, the Netherlands, and Sweden, public spending on housing allowances is about 0.5 percent of GDP, and between 0.1 and 0.3 percent of GDP in Austria, Bulgaria, Croatia, Czech Republic, and Ireland. No housing allowance programs were reported for Romania, the Slovak Republic, and Slovenia.
Slavi del Pero and others (2016, pg. 36) reports that the social rental sector accounts for less than 4 percent of the total dwelling stock in Estonia, Hungary, Latvia, Portugal, and Switzerland. It accounts for between 4 and 6 percent of the stock in Germany and Norway. The Czech Republic, Finland, and the UK have an intermediate-size social rental housing sector, while the sector is relatively large in Austria, Denmark, and the Netherlands. According to the OECD Affordable Housing Database, there is no social rental housing in Croatia, Cyprus, Greece, Sweden, and Turkey.