The Housing Bubble

A report from Toronto Storeys on Canada. “Premier Kathleen Wynne says she had serious concerns about the government sticking its nose in the red-hot, runaway housing market in Toronto, despite being urged to weigh in. Wynne said it became clear to her that market behaviour was ‘irrational.’ ‘It (housing prices) seemed irrational to me. It didn’t seem to be based on anything … I was concerned that there was no downward pressure on the market,’ she said. ‘It just got to the point where it just felt irresponsible not to do something.’”

The South China Morning Post on Hong Kong. “Hong Kong’s leader says she has never pledged to turn the tide on surging property prices in the city, which has remained the world’s priciest home market for the seventh year. Instead, Chief Executive Carrie Lam Cheng Yuet-ngor claimed what she hoped to reverse was the housing shortage. Lam’s latest remarks appeared to deviate subtly from her policy address, which stated that both ‘the current shortage in housing supply and surging property prices have resulted from both external and internal factors’ and that her administration was determined to rectify the situation with the greatest effort.”

“Critics have slammed plans she introduced in her maiden policy address in October, saying they have failed to stop home prices from skyrocketing. ‘I have never said [I would] turn the tide of the soaring property prices as [they] could be triggered by a lot of factors,’ she said, adding the government cannot suppress the home price hike.”

“Sammy Po Siu-ming, chief executive of Midland Realty’s residential division, said Lam’s policy to focus on boosting supply was ‘going in the right direction.’ ‘It is very difficult to try to curb property prices when housing demand and investment demand are both so strong. Trying to control demand is not the way to go,’ Po said.”

The Korea Times. “A supply surge of apartments across the country in 2018 is expected to help stabilize housing prices. The surplus number of apartments will reach 440,000, up 14.5 percent from this year. The figure is also the most since 1988, the Ministry of Land, Infrastructure and Transport and market research firms said. The incumbent administration is expected to welcome the increase of apartments as it has tried to curb rising real estate prices. For President Moon Jae-in, it has been one of his top economic priorities.”

“Under the initiative, the government plans to start large-scale construction projects aimed at supplying 2 million residential apartments in Seoul alone. Koreans have poured their money into apartments as prices have steadily increased over the past few decades. There were a few exceptions to the rising prices such as the Asian financial crisis in the late 1990s and the global financial crisis in the late 2000s, though.”

“In particular, the previous Park Geun-hye administration tried to boost housing prices to invigorate the economy, which led to abrupt appreciation of real estate values. One of its negative side effects is the snowballing household debt, which has topped 1,400 trillion won. Left-leaning President Moon promised to stop the trend. The oversupply of apartments is expected to help him achieve the initiative.”

The Japan Times. “Once a phenomenon primarily associated with rural communities, abandoned homes are permeating suburbs and worming into crowded cities at an alarming rate. Over 8 million properties across Japan are unoccupied, according to a 2013 government report. Nearly a fourth have been deserted indefinitely, neither for sale nor rent. In Tokyo — where 70 percent of the people live in apartments — more than 1 in 10 homes are empty.”

“Nomura Research Institute projects the number of abandoned dwellings to grow to 21.7 million by 2033, or roughly one-third of all homes in Japan. Meanwhile the population, which peaked nearly a decade ago, is forecast to fall 30 percent by 2065, creating an ever-increasing pool of uninhabited houses. ‘There is no single answer to the problem,’ said Wataru Sakakibara, a senior consultant at NRI who led the think tank’s study. ‘If this continues, at some point it may be necessary to consider limiting new construction. But that would have a substantial impact on the economy.’”

From Reuters on Norway. “Norway’s tightened mortgage regulations, in place since the start of the year, are working as planned and do not need to be repealed, Prime Minister Erna Solberg told Reuters. ‘What we’re seeing now is a normal adjustment of the housing market after years of rising prices,’ Solberg said. ‘I see no need to alter the regulations. What we have in place is working pretty well at the moment and has helped put breaks on prices,’ she added.”

From The Times of Israel. “Last month, during a session of the Knesset State Control Committee devoted to Israel’s ‘ghost’ apartments,” a representative from the Central Bureau of Statistics dropped a bombshell. Merav Pasternak, the deputy director of statistics for the government body, told the panel that the number of Israeli ghost apartments — apartments that sit empty most of the year — is not 40,000 as previously estimated, but 159,700.”

“If accurate, the figure would make Israel one of the leading countries worldwide in ghost apartments per capita. The adjusted number is significant because apartments left empty by wealthy investors from abroad are a hot-button issue in many Western cities, including New York, Miami, London, Melbourne and Vancouver. In these cities, real estate prices have risen astronomically over the last decade.”

“As a 2017 UN Report explained, in cities that are ‘prime destinations for global capital seeking safe havens for investments, housing prices have increased to levels that most residents cannot afford. The UN report decries the ‘financialization of housing’ whereby hundreds of billions of dollars of global wealth are being invested in real estate and transforming real estate markets. ‘Massive investment of capital into housing markets and rising prices should not be confused with the production of housing and the benefits that accrue from it,’ reads the report. ‘The bulk of real estate transactions of that sort do not create needed housing or long-term secure employment.’”

“But it is not just legitimate global capital that critics of the ghost apartment phenomenon decry. In many cases, these apartments are a vehicle for money laundering, they say. While the UN report does not cite money laundering as a key cause of this phenomenon, many mainstream news reports have done. ‘Why New York real estate is the new Swiss bank account,’ read a 2014 New York Magazine headline on the topic. An article entitled ‘The Kleptocrat in apartment B’ appeared in The New Yorker in 2016, while The New York Times titled a July 2017 report on the issue ‘When the empty apartment next door is owned by an oligarch.’”

From News.com.au in Australia. “Property prices have been swinging wildly across Sydney regions in the aftermath of the recent boom due to the once soaring market hitting unexpected turbulence in 2017. A review of real estate data for the year showed prices finally peaked in July after nearly five years of runaway growth. North Ryde in Sydney’s northwest had the biggest fall in prices, with the median unit price tanking 16.8 per cent. A few kilometres to the west, median unit values fell 8.6 per cent in Rydalmere and 6.8 per cent in Ermington.”

“Numerous units were being constructed in these suburbs and in surrounding areas such as Macquarie Park and Epping. There was also the added impact from rampant home building in areas further afield such as Sydney Olympic Park and Parramatta, which gave home seekers a greater selection of properties. The improved choice removed much of the pressure on buyers to offer higher prices to secure the properties they liked — a phenomenon that drove much of the price increases during the housing boom of 2013-16.”

“Suburbs Annandale and Forest Lodge recorded the biggest price falls across the inner west, with median unit values decreasing 13-15 per cent. CoreLogic analyst Cameron Kusher said unit construction had such a marked impact on prices because it coincided with weakening investor demand brought about by bank restrictions on interest-only loans. ‘It was probably the biggest change (this year),’ Mr Kusher said. ‘If banks clamp down further on loans, which they may do in 2018, there could be further acceleration in the current downturn in prices.’”