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INTERNATIONAL MONETARY FUND
ASIA AND PACIFIC DEPARTMENT
DEPARTMENTAL PAPER
Housing Market Stability and Afordability in Asia-Pacifc
Prepared by Pragyan Deb, Harald Finger, Kenichiro Kashiwase, Yosuke Kido, Siddharth Kothari, and Evan Papageorgiou, with inputs from Henry Hoyle and Anne Oeking
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Copyright ©2022 International Monetary Fund
Cataloging-in-Publication Data
IMF Library
Names: Deb, Pragyan, author. | Finger, Harald, author. | Kashiwase, Kenichiro, author. | Kido, Yosuke, author. | Kothari, Siddharth, author. |Papageorgiou, Evangelos, 1980-, author. | Hoyle, Henry S., author. | Oeking, Anne, author. | International Monetary Fund, publisher.
Title: Housing market stability and affordability in Asia-Pacific / prepared by Pragyan Deb, Harald Finger, Kenichiro Kashiwase, Yosuke Kido, Siddharth Kothari, and Evan Papageorgiou, with inputs from Henry Hoyle and Anne Oeking.
Other titles: International Monetary Fund. Asia and Pacific Department (Series).
Description: Washington, DC : International Monetary Fund, 2022. | DP/2022/020 | Dec. 2022. | Includes bibliographical references.
Identifiers: ISBN: 9798400203916 (paper)
9798400220821 (ePub)
9798400220913 (Web PDF)
Subjects: Housing policy--Asia. | Housing policy--Pacific Area. | Housing--Prices--Asia. | Housing--Prices--Pacific Areas.
Classification: LCSH HD7358.A3 D4 2022
The Departmental Paper Series presents research by IMF staff on issues of broad regional or crosscountry interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Contents
Acknowledgments
Acronyms and Abbreviations
Executive Summary
1. Introduction
2. Housing Price Dynamics in Asia-Pacific
A. Asia-Pacific Had a Pre-Pandemic Housing Boom
B. Many Housing Markets Further Strengthened during the Pandemic
C. The Post-Pandemic Phase Points to Housing Price Deceleration
D. The Asia-Pacific Region Is No Stranger to Pronounced Housing Cycles
E. Housing Cycles Can Have Large Economic Impacts
3. Misalignment, Downturn Risks, and Implications on Afordability
A. What Drove Housing Prices During the Pandemic?
B. How Misaligned Are Housing Prices?
C. How Large Are Downside Risks to Housing Markets?
D. How Much of a Problem Is Housing Afordability?
4. Policies to Safeguard Financial Stability and Promote Housing Afordability
A. Policies to Safeguard Financial Stability
B. Policies to Promote Afordability
5. Conclusion
Annex 1. Housing Price Decomposition
Annex 2. Housing Price-at-Risk
Annex 3. Estimating the Impact of MPMs
References
BOXES
Box 1. Construction, Real Estate, and Housing Markets in Asia-Pacific
Box 2. China’s Property Sector Crisis
Box 3. Synchronization and Decoupling in Regional Housing Markets
Box 4. Macroprudential Policy Toolkits in Asia-Pacific
Box 5. Housing and Household Debt in Emerging Market Economies
Box 6. Successful Soft Landings: The Singapore Example
FIGURES
Figure 1. Housing Price Dynamics Before and During the Pandemic
Figure 2. Housing Cycles Tend to Be Larger in AEs
Figure 3. Housing-Related Items Account for a Large Part of Household Living Costs
Figure 4. Housing Costs Tend to Be More Important for Lower-Income Households
Figure 5. Low Mortgage Rates and Demand Shocks Have Driven Recent Housing Price Surges in Regional AEs
Figure 6. Housing Price-to-Income and Price-to-Rent Ratios Have Increased Significantly
Figure 7. Prices Appear Misaligned in Advanced Asia-Pacific
Figure 8. Greater Misalignment and Higher Interest Rates Can Add to Downside Risks to Housing Prices
Figure 9. Housing Price-at-Risk Has Deteriorated Significantly in Asia-Pacific, Especially in Advanced Economies
Figure 10. Price Misalignment Has Been the Primary Factor Increasing Downside Risks in Asia
Figure 11. An Increase in Interest Rates Can Further Increase Downside Risks to Housing Prices
Figure 12. Household Debt Has Climbed to Historical Highs in Some Regional Economies
Figure 13. Housing Afordability is a Concern in Several Advanced Economies in Asia-Pacific
Figure 14. Increasing Housing Afordability Challenges in Australia and New Zealand
Figure 15. Housing Quality Is a Challenge in EMDCs in Asia-Pacific
Figure 16. Significant Inequality in Housing Quality Within Countries Across Income Levels
Figure 17. The COVID-19 Pandemic Ended a Decade of Macroprudential Tightening
Figure 18. Economies in Asia-Pacific Have Employed Various Macroprudential Policy Tools
Figure 19. Macroprudential Tightening Significantly Impacts Household Credit Growth
Figure 20. The Impact of MPM Tightening vs Loosening is Asymmetric, with Larger Effects of Tightening
Figure 21. Demand-Side Tools Appear to Be More Effective than Capital-Based Tools
Figure 22. Limited Impact of Macroprudential Tightening on Housing Prices
Figure 23. Concentration of Urban Population Is Expected to Increase in the Coming Decade
TABLES
Table 1. Many Economies Have Experienced Long and Sizable Housing Market Corrections
Acknowledgments
The paper was prepared under the general guidance of Anne-Marie Gulde-Wolf. The team was led by Harald Finger and comprised Pragyan Deb, Kenichiro Kashiwase, Yosuke Kido, Siddharth Kothari, and Evan Papageorgiou, with inputs from Henry Hoyle and Anne Oeking (all from the Asia and Pacific Department (APD) of the International Monetary Fund). The authors are grateful to research assistance provided by Vaishali Ashtakala, Ricardo Pinto Davico, and Ioana Hussiada; production assistance provided by Seble Abebe, Nadine Dubost, Lorraine Cofey, and Sylvie Poirot; and assistance with our original proposal provided by Patricia Loo.
The paper benefited from excellent comments from Helge Berger, Nina Biljanovska, Andrea Deghi, Federico Diez, Kodjovi Eklou, Ghada Fayad, Salih Fendoglu, Rui Mano, Paavo Miettinen, Erlend Nier, Natalia Novikova, Jean Portier, Sohrab Rafq, Ranil Salgado, Sergio Sola, Laura Valderrama, Huong Lan Vu, Hou Wang, and Ting Yan and others, including at two internal seminars.
Acronyms and Abbreviations
| ABS | Australia Bureau of Statistics |
| ADB | Asian Development Bank |
| AEs | Advanced Economies |
| BIS | Bank for International Settlements |
| bps | basis points |
| CPI | Consumer Price Index |
| DSTI | Debt Service to Total Income |
| EMDEs | Emerging Markets and Developing Economies |
| EMs | Emerging Markets |
| EU | European Union |
| FSB | Financial Stability Board |
| GDP | Gross Domestic Product |
| GFC | Great Financial Crisis |
| HaR | Housing Price-at-Risk |
| HH | Household |
| HPI | House Price to Income |
| HPR | House Price to Rent |
| HRS | Human Resource Services |
| LTV | Loan to Value |
| MPM | Macroprudential Measure |
| NPL | Nonperforming Loan |
| OECD | Organisation for Economic Co-operation |
| RBA | Reserve Bank of Australia |
| RBNZ | Reserve Bank of New Zealand |
| REINZ | Real Estate Institute of New Zealand |
| UN | United Nations |
Executive Summary
Housing markets in the Asia-Pacific region are at an important juncture. Having risen over the past decade and during the pandemic, housing prices now appear slated for a decline in many countries. Pronounced housing cycles, which Asia-Pacific has experienced repeatedly also in the past, come at a cost. The buildup of vulnerabilities in the upswing tends to come to the fore during downturns, often with marked impacts on the broader economy. High housing prices and the prospect of increasing mortgage rates, as central banks tighten monetary policy, also imply a significant deterioration in housing affordability.
Housing prices in many countries across the region now appear misaligned, with significant downside risk to prices in the period ahead. Price surges during the pandemic, especially in the region’s advanced economies (AEs), were facilitated by low mortgage rates as central banks implemented very accommodative policy stances, along with country-specific demand and supply factors. This led to sizable price misalignment and a marked increase in downside risks to housing prices going forward, in the order of 5–20 percent in some countries. Rising interest rates will add to downside risks going forward. While the financial sectors of major AEs and emerging market economies (EMs) appear sound and would be expected to remain resilient under such shocks, close supervision is warranted for early identification of any pockets of risk.
With higher housing prices, housing affordability has become an increasing concern in the aftermath of the pandemic. Especially in the AEs, households have to stretch their wallets to be able to finance adequate housing, with an increasing share of them now overburdened by that cost. Adequate housing in many emerging market and developing economies (EMDEs) is also less affordable due to high housing prices, reflective of supply being unable to catch up with the rising demand of quickly growing populations. Poorer households in these countries are disproportionately affected.
To address the housing cycle and safeguard financial stability, macroprudential policies should be the first line of defense. Countries in the Asia-Pacific region by now have a broad toolkit at their disposal, and policies have proven effective at mitigating housing credit growth during upswings. Within the toolkit, demand-side measures, such as loan to value (LTV) and debt service to total income (DSTI) limits, have been more effective than capital-based tools, and the effect of policy tightening during upswings has been generally stronger than stimulatory effects of policy loosening during downturns. While macroprudential measures have been effective at targeting household credit growth, they only have a limited effect on housing prices on average, and only significantly so in regional EMs. Leakages of macroprudential measures are also of concern, and policymakers should widen the regulatory perimeter where needed.
Improving housing affordability requires a multi-faceted policy approach. Facilitating a stronger supply response will be key in many countries to address underlying imbalances. This includes reviewing land use regulations, increasing the focus on urban planning, incentivizing the use of idle land, and providing adequate social and affordable housing, both directly by the public sector and indirectly through incentives for private developers. But supply-side measures often take significant time to produce results, putting a premium on demand-side measures, which work more quickly. Such measures can include targeted government support, progressive taxation on property, targeted macroprudential policy to contain systemic risks while being mindful of its repercussions on lower-income households and owner-occupiers, and making use of targeted financing, insurance, and guarantee mechanisms.