Economists and housing industry experts from around the world convened to discuss the global housing industry at the International Housing Association (IHA) Annual Meeting. The meeting was held in conjunction with the 2017 International Builders’ Show.
In early January, the Australia Housing Industry Association, Japan Federation of Housing Organizations and the Canadian Home Builders’ Association, among several others, shared news and views on housing from an international perspective. Additionally, first-time guest attendee, Jose Carlos Martin, president of the Brazilian Chamber of the Construction Industry, gave a brief overview of the state of housing in Brazil. All of the presentations are available to the public.
Representatives from the International Monetary Fund and the Federal Reserve Bank of Dallas also made a special appearance.
Enrique Martinez-Garcia, senior research economist and adviser for the Federal Reserve Bank of Dallas, addressed the question of whether there’s a link between home prices and oil prices. The discussion was based on research conducted using the Globalization and Monetary Policy Institute’s International House Price Database. The database comprises quarterly house price and personal disposable income series for a number of countries.
Martinez-Garcia noted in his presentation that globally house prices and oil prices do not appear to be directly related. However, at the local level, in markets that are more dependent on oil production, house prices and oil prices are more closely linked. The data shows that technological advancement in the oil market has resulted in demand shocks due to energy-efficiency gains, and supply shocks due to shale oil excavation.
Generally speaking, land prices and house prices move together, but land prices are more volatile. This trend was most observable during specific turning points such as the collapse of oil prices in the mid-80’s and the increase in oil prices in the 2000’s. There was a divergence of long-term interest rates and oil prices beginning in the 2000’s. For example, the spillovers from higher oil prices led to higher land and house prices in Texas. This demonstrates that to some extent, oil prices are a proxy for disposable income in areas dependent on oil production.
Martinez-Garcia said that from the early 2000’s to 2008, declining mortgage rates and robust growth in disposable income pushed up house prices — a trend that was reinforced by rising oil prices pushing up land prices. From the financial collapse starting in 2008 to falling oil prices in 2014-2015, the collapse in disposable income was the key determinant in house price correction.
Richard Koss, senior economist at the International Monetary Fund (IMF), addressed political populism and the impact on housing. Using data and analysis from the IMF Global Housing Watch, he measured the secular stagnation that fueled the Brexit vote in the United Kingdom (UK), and the presidential election in the United States.
Using Branko Milanovic’s analysis of global inequality, he drilled down on real income growth at ranges of income distribution over 20 years. He then differentiated among countries. For example, real income growth virtually doubled among the Chinese middle class from 1988 to 2008, compared to almost no growth within the U.S middle class. The analysis reported dramatic real income growth among the middle-class in developing countries, and stagnation within the middle-class of developed countries.
Continuing a discussion started by his colleague at the 2016 IHA Interim Meeting, Koss clustered countries into three housing categories: Gloom, Bust & Boom and Boom. In particular, the IMF data supports the conclusion that many local housing markets are in supply-constrained conditions, a position voiced by IHA member organizations over the past three years.
After a brief discussion about foreign purchasers of homes in the U.S., Koss also addressed the impact of Brexit, and more specifically: the local housing markets world-wide would benefit from that 2016 vote. He offered evidence of how house price escalation contributed to the Brexit vote, and suggested that banning housing ownership by foreign non-residents in the UK is the only way to align house prices with household incomes.
The Federal Reserve Bank of Dallas, the IMF and IHA member organizations will continue the dialogue on these issues and others at the 2017 IHA Interim Meeting, which will be held Nov. 8-10 in Tokyo, Japan. The IMF will have data comparing mortgage rates in developed and developing countries, and how that impacts housing affordability.