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Fundamentals of House Price Inflation

Another installment in our continuing series, dismissing the notion of house price inflation as a monetary policy-driven ‘bubble,’ this time from the Chicago Fed:

the housing boom has not been driven by unusually loose monetary policy. This is not to say that monetary policy has not been unusually loose, but that to the extent it has been loose, this is not what has been driving spending on housing. Second, the current levels of spending on housing are largely explained by the wealth created by dramatic technological progress over the previous decade. Third, changes in the demographic, income, educational, and regional structure of the population account for only one-half of the increase in homeownership. ... The last finding is that substitution away from rental housing made possible by technology-driven developments in the mortgage market, such as subprime lending, could account for a significant fraction of the increase in residential investment and homeownership. The current spending boom thus may be a temporary transition toward an era with higher homeownership rates and a share of spending on housing that is nearer historical norms.

(HT:  Mark Thoma)

posted on 14 September 2006 by skirchner in Economics

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Is the first home buyers grant still around? That subsidy has no doubt contributed in some way to demand led higher prices for housing.

Posted by Sukrit Sabhlok  on  09/15  at  11:51 PM


The first home owners grant was a characteristically self-defeating demand-side policy, which benefited incumbent owners of property rather than first home buyers.  It was also not means-tested, which is why the government has been so keen to suppress information about who got the grant.  The recent High Court FOI case was partly in relation to a request for this information.

Posted by skirchner  on  09/16  at  05:00 AM



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