Working Papers

Supply-Side Constraints and House Prices

The Economist finally has something to sensible to say on house prices, reporting on research into the effects of supply-side constraints on house prices in US cities.  There is hope for The Economist yet!  The original paper is here.

Meanwhile, David Smith highlights the sorry record of house price crash predictions in the UK:

The first housing-crash story I could find in the present cycle came in 1996, when one Bob Beckman predicted a 20-year fall in prices. There was another batch in 1997, when the fear was that Labour’s election would hit house prices hard.

In 1998 and 1999, when the stock market was booming, there was a steady trickle of housing-crash predictions, building further when the stock-market boom turned to bust in 2000. The September 11 attacks on America persuaded many that housing was about to take a dive and, in the three years since, talk of a housing crash has built up to a crescendo.

David Smith’s skepticism is refreshing.  It is interesting that the debate about house prices in the US, Australia and the UK is very similar, yet so many commentators remain wedded to country-specific explanations for what is clearly a global price shock to this asset class.

posted on 15 February 2005 by skirchner in Economics

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what is the global price shock?

i was under the impression that sydney house prices have risen because demand (due to immigration) is outstripping supply.

Posted by .(JavaScript must be enabled to view this email address)  on  02/18  at  05:27 PM

It is global in that residential property prices rose strongly, especially in the Anglo-American economies, all at much the same time.  My guess is that the main factor has been a shift in household asset allocation preferences, which explains why the shock was shared by countries with similar institutional characteristics.

Increased inbound migration driven by tight labour markets is certainly part of the equation for places like Sydney and Auckland, but the global nature of the shock suggests that something more general is at work.

Posted by skirchner  on  02/18  at  05:43 PM

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