The Housing Bubble

A weekend topic on government policy and housing bubbles, starting with the Los Angeles Times in California. “For the last eight years, I have used my commute from the South Bay to downtown to explore the neighborhoods of Los Angeles. The more I drive, the more I notice what I call L.A.’s ‘lost space,’ mysterious plots of land that sit abandoned or underused throughout the city. On Figueroa Street near West 52nd Place in South L.A., for instance, two barren parcels sit on opposite sides of the road, the larger one surrounded with an old rusted chain-link fence. As a person who studies the economy, I’ve found it puzzling: How is it that in one of the world’s hottest real estate markets, in a city that is in dire need of affordable housing, land like this sits idle?”

“The answer stands in plain sight at the center of one of those forlorn lots, where a large white sign reads: ‘Property of the City of L.A.’ We now know that we’re land rich. Faced with a growing homelessness crisis, City Hall has started offering affordable-housing developers opportunities to develop a small number of the city’s surplus properties. That’s an important step. But there’s still no long-term strategy for using and leveraging L.A.’s incredible wealth of city-owned land to meet our needs.”

From Xinhua in China. “Home prices in major Chinese cities largely remained stable in May as local governments toughened up restrictions to prevent speculation, official data showed. Home prices in 35 third-tier cities were cooler. There was a slowdown in price growth for four months in a row in new houses, and for 10 months in existing ones. ‘The majority of cities saw an ongoing year-on-year downturn or deceleration of growth in home prices,’ NBS senior statistician Liu Jianwei said.”

“During previous years, rocketing housing prices, especially in major cities, had fueled concerns about asset bubbles. To curb speculation, local governments passed or expanded their restrictions on house purchases and increased the minimum downpayment required for a mortgage. With a flurry of property market controls, authorities have demonstrated their will to keep a lid on housing prices. Over 40 cities unveiled a total of 50 property market regulations in May, a monthly record for frequency, according to the latest statistics from Centaline Property.”

“This year’s government work report reiterated that ‘houses are for living in, not for speculation.’ ‘China will not waver in its efforts to implement property market regulation and will maintain continuity and stability of policies in 2018,’ said Wang Menghui, minister of Housing and Urban-Rural Development.”

From Channel Asia on Singapore. “By the late 1980s, housing security was mostly solved with home ownership hovering at around 90 per cent of the population from 1990 till present. Yet, policies to encourage home ownership did not let up. From the late 1980s to mid 1990s, many policies were introduced to encourage home ownership. To compound issues, our population is ageing fast. By 2030, as much as one quarter of our resident population may be over 65, many of them living in larger-than-needed flats, as their children leave the nest or as their partner passes away.”

“A house is not just a shelter. It is also a leveraged financial asset. You are taking risk on both property prices and interest rates. Singapore’s rapid growth over the first 50 years from independence has led many people to believe that home ownership is a ’sure win,’ as house prices also rose from wage and population growth. Even then, we received a sobering lesson in the late-1990s, when housing prices crashed. We have only recovered to 1996 price levels in the last several years. If many choose to fund their retirement by monetising their houses, they may run into an oversupply of flats on the market, lowering resale prices.”

From Vietnam News. “The HCM City housing market will continue to grow this year, especially the VNĐ1 billion (US$44,000) condo segment, the HCM City Real Estate Association (HoREA) has predicted. Lê Hoàng Châu, its chairman, said the VNĐ1 billion segment would be the most liquid while the luxury segment will be restructured in line with actual demand. Authorities would continue to cool down the land and condotel segments, it said.”

“They would strengthen relations with foreign investors to raise more funds, it said. Nearly 9,200 housing units were put in the market, 8,690 of them apartments and the rest houses, down by more than 44 per cent. The slowdown had spread to the apartment market, with the luxury segment declining by 26 per cent, the mid-price segment by 32 per cent and the low-end segment by 70 per cent. Land prices shot up, especially in District 9, though of late they have levelled off.”

“According to HoREA, developers face challenges in getting loans since banks are tightening credit on instructions from the State Bank of Việt Nam. The association wants the Government to control two main factors that affect the market: the imbalance between demand and supply in the luxury apartment and condotel segments and the disinformation spread by brokers to manipulate land prices.”

From Edge Malaysia. “The new government’s apparent intention to ease lending rules for home purchases may introduce additional risks to banks, analysts told The Edge weekly. Plans to facilitate home ownership among the youth, and M40 and B40 groups may result in banks being ‘forced’ to lend to these groups. ‘As it is, banks are generally wary of lending to youth, given that the biggest number of bankruptcies comes from this group,’ said an analyst.”

“Analysts speculated that the government may relax the debt service ratio (DSR) from 60% currently, but this raises concerns over what happens in case of defaults and also the gearing levels of the borrowers. The DSR was introduced to prevent the lower-income group from borrowing too much, pointed out one analyst. ‘We’ve already tried a lot of things and reached a point where there is even an oversupply of affordable housing.’”

From IntelliNews. “The Czech National Bank (CNB) took aggressive actions to burst a potential real estate bubble before it gets too big on June 12 by increasing the banks capital buffer rate to 1.5% effective from July 1, 2019 and tightening lending policies on mortgages effective from October 2018. The CNB introduced a raft of tough prudential rules to ensure that consumers don’t overload themselves with debt. Analysts have said a nascent real estate bubble is already receding and could soon burst.”

“But the growth in prices is still a worry, especially in Prague, where AirBnB is driving out regular tenants and the rate of issuing construction permits for new apartments has long outstripped demand. In response, the CNB has slammed on the brakes and issued very conservative recommendations, in effect saying, ‘We won’t let the 2008 crisis happen again.’”

From CBC News in Canada. “In an election where housing affordability is far and away the dominant issue, Vancouver mayoral candidates have largely taken two tracts. Patrick Condon wants new taxes on development land, and a new mansion tax. ‘I don’t see any way that the market under present circumstances can supply housing for the average wage earner, and I think the city only has a choice, under these circumstances, to re-engage in the construction of non-market housing,’ said Condon, who has been a University of B.C. professor in architecture and urban design for over 25 years.”

“Condon’s campaign, while only a week old, has been enthusiastically promoted by some on the left. Lindsay Brown, a writer and communications consultant, believes other candidates are putting too much faith in the private market to lower housing prices. ‘This idea that if we just build more, and remove barriers to build more housing, prices will go down. We’ve had more than an decade of this idea, so I don’t think there’s any thing particularly valuable about Hector Bremner’s idea.’”

From Macleans in Canada. “Across the street from a run-of-the-mill Starbucks in the Kitsilano neighbourhood of Vancouver is a two-storey Ferrari and Maserati dealership. Locals will tell you with amazement that it is the highest-volume location in North America. Whether or not that’s true, the five homeowners gathered today around a table at the Starbucks want to make clear that Ferraris are not for people like them. Though their homes on the west side of the city may be worth millions of dollars, they do not consider themselves rich.”

“‘It’s really hurtful when someone says, ‘You live in a $2-million property, so that means you’re a wealthy person,’ says Mary Lavin, an English teacher. ‘Um, no. Not at all.” Lavin points to her car in the lot, a 1998 Toyota Tercel. ‘I’ve had one holiday in my life.’”

“They do, however, have lots of equity in their homes, which the provincial NDP government has moved to tax at a higher rate. Residents have launched petitions, staged protests and erected yard signs claiming the tax is ‘hurting seniors and working-class families the most!!!!’ Home values have skyrocketed in the area, but incomes have not. Those who purchased property many years ago don’t necessarily have extra cash on hand.”

“The NDP government has opted for taxation to reduce demand. In addition to the extra school levy, the province increased and expanded the foreign buyer tax and put in place a so-called ’speculation tax,’ which applies to vacant homes in select regions. Finally, the province boosted the property transfer tax on high-end homes, and expanded disclosure requirements to end hidden ownership. ‘We finally have a government that’s serious about housing affordability and is willing to see prices fall,’ says Joshua Gordon, an assistant professor in the school of public policy at Simon Fraser University.”

From This Garden Island in Hawaii. “Kauai County Councilman Arthur Brun said his employer, Hartung Brothers, has been trying to build farmworker housing on its Westside property. But there’s a problem. ‘There’s so much red tape to get it done,’ Brun told about 100 people at the Aqua Kauai Beach Resort. ‘It’s a battle. The politics have gotten in front of the daily living,’ he added.”

“Their main point seemed to be that there is a lack of affordable housing, and part of that is due to government regulations that limit building. But they also noted high housing is, after all, the cost of living in paradise. ‘It’s probably never going to be as cheap as we want in Hawaii,’ said Paul Brewbaker of TZ Economics. ‘If it were, others would come here and bid up the price.’”