Table Of ContentHousing M a rkets in Europe
Ol ivier de Bandt (cid:127) Thomas Knetsch (cid:127) Juan Peñalosa
Fra ncesco Zollino
Ed itors
Housing M arkets in Europe
A Macroeconomic Perspective
Editors
Olivier de Bandt Thomas Knetsch
Banque de France Deutsche Bundesbank
46-1405 DCPM Economics Department
rue Croix des Petits Champs 39 Wilhelm-Epstein-Straße 14
75049 Paris 60431 Frankfurt am Main
France Germany
[email protected] [email protected]
Juan Peñalosa Francesco Zollino
Banco de España Banca d’Italia
Servicio de Estudios Servizio Studi di Congiuntura e
Alcala 48 Politica Monetaria
28014 Madrid Via Nazionale 91
Spain 00184 Rome
[email protected] Italy
[email protected]
ISBN978-3-642-15339-6 e-ISBN978-3-642-15340-2
DOI10.1007/978-3-642-15340-2
SpringerHeidelbergDordrechtLondonNewYork
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Acknowledgements
The articles published in this book were discussed by academics and economists
fromcentralbanksorinternationalorganisationsduringtheconferenceheldinParis
on3and4December2009on”Themacroeconomicsofhousingmarkets”.Theau-
thorswishtoexpresstheirsincereappreciationtothem.Thisincludes,inalphabet-
icalorder:
C.Andre´(OECD),J.Ayuso(BancodeEspan˜a),D.Beau(BanquedeFrance),A.
Benito(BankofEngland),R.Bru¨ggemann(UniversityofKonstanz),A.Diaz(Uni-
versity Carlos III), S. Dubecq (Banque de France), G. Dufre´not (University Aix-
MarseilleandBanquedeFrance),S.Frappa(BanquedeFrance),G.Ferri(Univer-
sityofBari),I.Ghattassi(BanquedeFrance),S.Gre´goir(EdhecBusinessSchool),
P.Jaillet(BanquedeFrance),J.S.Me´sonnier(BanquedeFrance),P.Moutot(Euro-
peanCentralBank),J.Muellbauer(OxfordUniversity),F.Panetta(Bancad’Italia),
G. Pe´rez-Quiro´s (Banco de Espan˜a), A.F Pozzolo (University of Campobasso),
J.P. Redouin (Banque de France), T. Wollmersha¨user (Ifo Institute), G. Ziebarth
(DeutscheBundesbank).
In addition, they warmly thank L. Ferrara (Banque de France), B. Rouvreau
(BanquedeFrance)andF.Robert(BanquedeFrance)whoexpertlyassembledthe
differentarticlesinLATEX.
v
Preface
Duringtherecessioninyears2008-2009,themostsevereformatureeconomiesin
thepost-warperiod,housingmarketshaveoftenbeenmentionedashavingaspecial
responsibility.Duringthisperiod,housingwasassociatedeitherwithdisruptionsin
the financialsector - whichwere triggeredbycrisis ofthe USsubprimemortgage
market -, or sharp shifts in the demand previously addressed to the construction
sector, with effects on overall activity, or downward corrections in house prices,
negativelyaffectinghouseholds’wealth.
FromtheEuropeanpointofview,acentralissueistoinvestigatewhetherthese
dynamicsare country-specificor share commonpatterns acrosscountries. For the
conductofthesinglemonetarypolicyitisimportanttoassesstowhatextenthousing
marketsintheeuroareahavebecomemorehomogeneous.Anotherpolicyrelevant
questionistoassesswhethershocksinthehousingsectormayjeopardisefinancial
stability.
Theobjectiveofthisbookistoshedlightonthecyclicalbehaviourofthehousing
markets,itsfundamentaldeterminantsintermsofsupplyanddemandcharacteris-
tics,anditsrelationshipwiththeoverallbusinesscycle.Thecomovementsofhouse
pricesacrosscountriesare also considered,as wellas the channelof transmission
ofhousepricechangestotherestoftheeconomy.Particularattentionispaidtothe
effectsonprivateconsumption,throughpossiblewealtheffects.
Thecontributionsfocusondevelopmentsinthefourlargestcountriesintheeuro
area on the basis of a collection of research papers written by economists from
DeutscheBundesbank,Banquede France,Banca d’ItaliaandBancodeEspan˜a.It
alsoincludesanintroductorylecturebyMatteoIacoviello(FederalReserveBoard
andBoston College,United States), whodiscussed theanalyticalmeritsandchal-
lenges of incorporating a housing sector in macroeconometric models, especially
DynamicStochasticGeneralEquilibriummodels.
Theconclusionofthebookisthathousingmarketcyclesarestillrelativelyhet-
erogeneousacrosseuroareacountries,eventhoughthereissomeevidencepointing
towardsconvergencesincethecreationoftheEconomicandMonetaryUnion.On
theotherhand,housingmarketsmaygiverisetosignificantmacroeconomicshocks,
asthecurrentcrisishasshown,thereforecallingforaregularmonitoringofhousing
developments.
vii
viii Preface
Afterreviewingthemainreasonswhythemacroeconomicsofhousingmarkets
representsarelevantresearcharea,thepaperscollectedinthisvolumewillbebriefly
summarised.Itshouldbenotedthatallthearticlesinthebookexpresstheopinions
oftheauthorsanddonotnecessarilyreflectthepositionsofDeutscheBundesbank,
BanquedeFrance,Bancad’ItaliaorBancodeEspan˜a.
1 Housing markets inEurope asa relevanttopicofeconomic
research
Thedevelopmentsinhousingmarketsinfluencebusinesscycles,playakeyrolein
thetransmissionofmonetaryimpulsestotherealeconomyand,underunfavourable
circumstances,mayevenaffectthestabilityofthefinancialsystem.Thisisduetoa
varietyofreasons.
First,housingtakesarelativelysignificantshareineconomicactivityand,thus,
shocks that originate in the housing sector can have a marked effect on the other
macroeconomicvariables.Residentialinvestmentandconsumptionofhousingser-
vices (mostly effective and imputed rents) accountfor a share between 13 and 19
percentofGDPinthefourlargestcountriesoftheeuroarea,whereasrealproperty
assets represent more than 50 per cent of households’ total gross wealth in these
economies (see table 1). This is comparable to the figures found for the United
States regarding the share of housing in households’ total wealth (see Iacoviello,
2010,thisvolume).
Table1 Sizeofhousingmarkets
Germany France Italy Spain
Housingconsumptionandinvestment 19 15 13 16
asashareofGDP(in%)
Housingwealth(includingland)asashare 52 63 51 89
oftotalhousehold’sgrosswealth(in%ofGDP) (198) (337) (298) (557)
Credittohouseholdsforhousing/GDP(in%) 42 37 21 60
(households’debt/GDPin%) (61) (51) (40) (84)
Source:Nationalaccountsfor2008,MonetarystatisticsfromNationalCentralbanks
Second, purchasing a housing unit is the main motivation for entering into a
debt contract by householdsand, accordingly,housing wealth backs a large share
ofbankingloans.Creditforhousingrepresents21percentofGDPinItalyand60
percentinSpain,whileFranceandGermanyareinintermediatepositions.Tosome
extent, these differences reflect cross-country divergences in the share of owner-
occupiedhousing,moredevelopedinSpainandItalythanGermanyandFrance.
Third,giventhelengthofthehousingconstructionprocess,mismatchesbetween
Preface ix
supplyanddemandcanbeprotracted,initiatingswingsinhousepriceswhichmay
feed on themselves and delay a change of direction. Thus, the housing market is
prone to episodes of overvaluation which may have significant effects across the
economysinceitmaytransmittotheconstructionsector-astheyaffectfirms’ex-
pectedprofitability-aswellastootherindustries,viachangesintheabilitytoaccess
credit markets, and to households,leading to wealth effects on consumption.One
should thereforeacknowledge,followingLeamer (2007),that the macroeconomic
contributionofresidentialconstructiontothebusinesscyclemaygobeyonditslong
termshareinGDP,sinceshocksaffectinghousingmarketsmaybeoflargeampli-
tude at particularpoints in time.1 Leamer (2007)indeed shows that all recessions
in the United States apart from the one in 2003 were preceded by a crisis in the
residentialconstructionmarket.
These features may explain why housing developments also have significant
macrofinancial implications. Indeed historical experience shows that many finan-
cialcrisesinthepastoriginatedorwereexacerbatedbyhousing-relatedfactors.In
particular,inthelastdecadehousingmarketsseemtohaveplayedasubstantiverole
inbuildingupglobalmacroeconomicimbalances,theUSsubprimecrisisbeingthe
mostoutstandingexample.
Focusing on developments in the euro area, residential investment and house
pricesmoveddifferentlyinthememberstatesduringthecrisis.Thedegreeofinte-
gration,althoughpartlyincreasingsincethestartofEconomicandMonetaryUnion
in1999,isstillrelativelymodestamonghousingmarkets.Thisevidence,whichis
also one of the main conclusions drawn from the bulk of investigations collected
in this volume, gives rise to a number of questions, which are both analytically
challengingandrelevantfromapolicyperspective.Amongthesequestionsarethe
followingones.Isthepresentdiversityinnationalhousingmarketsrelatedtodiffer-
encesininstitutionalsettings,thehabitsofconsumersandinvestorsandotherchar-
acteristics?Whicharethebuilt-inforcesofamonetaryunionwhichcouldbalance
outdifferencesinhousingmarketsandhowcanthesebestrengthened?Howcanthe
settingandconductofeconomicpoliciesaswellasfinancialmarketregulationand
supervisionbedesignedtoavoid,oratleastcounteract,theemergenceofboomand
bustcyclesinrealestatesectors?Howcanmonitoringofhousingmarketdevelop-
mentsbeimproved?Whatlessonscanbedrawnfromtherecentcrisis? Thesefew
andratherselectiveissuesaloneconstituteaveryambitiousresearchagenda.
Although only tentative conclusions can be drawn from the broad spectrum of
results presented in the book, one conclusion is that the convergence of residen-
tialmarketswithintheeuroareahasbeenhamperedbyamixtureoffactors.First,
nationalidiosyncrasiesare still of prevalentimportancein housingmarkets, given
therelevanceoffactorssuchastaxation,socialhousing,legislationorlandrestric-
tions.Second,thefundamentalsofhousingdemand-forexample,demographics-
haveevolvedquitedistinctlyacrosscountries.Third,realinterestratedifferentials,
whiledecliningsomewhat,werestillcharacterisedbyahighdegreeofpersistence,
1Leamer,E.E.(2007),Housing,housingfinance,andmonetarypolicy,FederalReserveBankof
Kansas City, Presentation toSymposium organized inJackson Hole, August 30 -September 1,
2007.
