HOUSING MARKETS ,
PUBLIC POLICIES AND
GROWTH: EVIDENCE
FROM OECD COUNTRIES
Dan Andrews
Senior Economist & Head of Productivity WorkStream
Structural Policy Analysis Division
Economics Department, OECD
European Commission and ESRI Housing
Conference
Dublin, 6 November 2015
1. Roadmap
• The OECD Housing Study (2011)
– New cross-country comparable policy indicators
– Links between these indicators and housing market and
economic performance: the unintended consequences of
poorly designed housing market policies can be sizeable.
• Housing markets and public policy
–
Housing finance and banking supervision
–
Supply-side factors
–
Housing taxation policy
–
Rental market regulations and social housing
• Housing policies and productivity growth
I. Housing Markets and Public
Policy
Variations in responsiveness of new
housing supply to changes in prices
Estimates of the long-run price-elasticity of new housing supply, 1980’s - 2007
2.5
2.0
1.5
1.0
0.5
0.0
1. Estimates of the long-run price elasticity of new housing supply w here new supply is measured by residential investments.
All elasticities are signif icant at least at the 10% level. In the case of Spain, restricting the sample to the period 1995-2007,
w hich w ould ref lect recent developments in housing markets (such as the large stock of unsold houses resulting f rom the
construction boom starting in 2000 and peaking in 2007-09), only slightly increases the estimate of the elasticity of housing
supply f rom 0.45 to 0.58. Estimation period early 1980s to early 2000s. See Caldera Sánchez and Johansson (2010) f or
details.
When housing supply is rigid, real HP volatility is higher (slide A3) and demand shocks
(e.g. financial deregulation) get translated into larger rises in real HP (slide A2).
Supply responsiveness is
influenced by public policy
A. Scarcity of land
B. Land-use regulations
Supply responsiveness¹
Supply responsiveness 1
2.5
2.5
Correlation coef f icient: -0.56***
Correlation coef f icient: -0.45**
USA
2.0
USA
2.0
1.5
1.5
SWE
SWE
DNK
CAN
1.0
CAN
JPN
FIN
NZL
IRL
AUS
NOR
ESP
0.5
DNK
FIN
1.0
JPN
NZL
POL DEU
FRA
GBR ISR
ITA
AUT
CHE
0.5
BEL
FRA
NLD
0.0
IRL
DEU
AUS
GBR
BEL
AUT
NLD
ESP
ISR
POL
NOR
ITA
CHE
0.0
0
100
200
300
400
Population density 2
0
50
100
150
200
250
Number of days to obtain a building permit³
Source: Andrews, Caldera-Sanchez and Johansson (2011).
What to do? Ease rigid construction licensing procedures, zoning restrictions, rent
regulations; Provision of complementary infrastructure; Taxation of vacant land
and unoccupied properties; Link property value for tax purposes to market prices
to encourage development.
Housing taxation
• Despite a weak economic rationale, housing is often taxfavoured in OECD countries:
– Mortgage interest deductibility (slide A1) often outweighs the value
of tax (if any) on income streams (imputed rent, capital gains) and/or
recurrent property taxes (small and/or cadastral values dated).
– Regressive and increases macroeconomic vulnerability (slides A2A3)
• Transaction taxes distort housing transactions and create lockin effects, esp. for financially constrained younger people:
– Cut transaction taxes and scale-up recurrent taxes on immovable
property (slide. A4)
Transaction costs of purchasing
property, 2009
Transaction costs refer to average costs. The estimates do not take into account the various tax breaks that exist in
countries for certain dwellings implying that the estimated cost may overestimate the actual cost in some countries (for
example in Italy) where such tax breaks are frequent. In addition, VAT when applied to certain costs is not included due
to data limitations.
Source: Andrews, Caldera-Sanchez and Johansson (2011).
Rental market regulations and
social housing
• Stricter rent controls (slide A5) are associated with a lower
quantity and quality of housing.
• Stricter rent regulations in social housing than the private
rental market (slide A6) may discourage mobility amongst
social tenants.
• Social housing regimes generally means-tested in OECD
countries (slide A7).
– A targeted approach is more efficient
– But can lead to residential segregation and high EMTRs when
residents circumstances change.
• Portable housing allowances as an alternative?
– But more effective with a flexible housing supply.
Rent market regulations
Tenant-landlord regulations in the private rental market
Increasing in protection of tenants
6
Index=Ease of eviction + tenure security + deposit requirements
5
4
3
2
1
0
Source: Andrews, Caldera-Sanchez and Johansson (2011).
II. Housing Policies – Links with
Productivity
Residential mobility varies across
countries
Percentage of households that changed residence w ithin the last 2 years
Percentage of households that changed residence within the last 2 years
%
30
25
Residential mobility correlated with:
• Worker reallocation rates (slide B1)
• Housing policies (Supply, trans tax, rent regulations; slide B2)
20
15
10
5
0
Source: Andrews, Caldera-Sanchez and Johansson (2011).
Skill mismatch as a constraint on
labour productivity
Skill mismatch, particularly over-skilling, is harmful for productivity because it
constrains the ability of innovative firms to attract skilled workers and grow
Source: Adalet McGowan, M and D. Andrews (2015), “Labour market mismatch and labour productivity:
evidence from PIAAC data ” OECD Economics Department Working Paper, No. 1209.
Skill mismatch results from policyinduced barriers to labour mobility
The probability of skill mismatch and public policies
Source: Adalet McGowan, M and D. Andrews (2015), “Skill mismatch and public policy in OECD countries”
OECD Economics Department Working Paper, No. 1210.
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Authors:
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Giuseppe Nicoletti
Spares
A1-A7. More on housing policies
B1-B3. More on mobility
C1-C3. More on skills
A1. Tax relief on mortgage debt
financing is often high, 2009
Estimated wedge between the market interest rate and the after-tax debt
financing cost of housing; increasing in the degree of tax relief
This indicator takes into account if interest payments on mortgage debt are deductible from taxable income and
if there are any limits on the allowed period of deduction or the deductible amount, and if tax credits for loans
are available. For countries that have no tax relief on debt financing costs, this indicator takes the value of zero.
Source: Andrews, Caldera-Sanchez and Johansson (2011).
A2. Real house prices, demand
shocks and housing market settings
Source: Andrews (2010).
A3. HP volatility, banking supervision
and housing market settings
Real house price volatility
can be reduced by…
Policy experiment
25%
A further improvement in banking supervision equivalent to that observed on average in
OECD over the 1990-2005 period.
20%
Reducing the maximum loan to value ratio by 10 percentage points.
19%
Increasing the estimated supply elasticity from the level observed in Ireland to the level
in Canada.
11%
Reducing the tax relief on mortgage debt financing costs from the level observed in
Netherlands to the level in Sweden.
2
1.
The policy experiments are roughly equivalent to the impact of a one standard deviation change in the policy variables of
interest on real house price volatility. Estimates are based on random effects panel regressions for betw een 16 and 20 OECD
countries, over the period circa 1980-2005. The dependent variable is the standard deviation in annual real house price grow th
and the model also controls for macroeconomic volatility and time fixed effects (see Andrew s (2010) for details).
2.
Over the sample period, loan to value ratios range from a minimum of 56% to a maximum of 110% in OECD countries.
Source: Andrews, Caldera-Sanchez and Johansson (2011).
A4. Taxes on property are low by
international standards
Share of property taxes as % of GDP, 20111
3.5
% of GDP
% of GDP
3.5
3
2.5
2.5
2.0
2
1.5
1.5
1.0
1
0.5
0.5
0.0
0
LUX
AUT
CZE
MEX
CHE
TUR
EST
DEU
NOR
SVK
CHL
HUN
SVN
FIN
NLD
KOR
PRT
SWE
GRC
IRL
ESP
OECD
ITA
POL
BEL
AUS
DNK
ISL
NZL
JPN
ISR
FRA
USA
CAN
GBR
3.0
1. Or nearest year
Source: OECD Revenue Statistics
A5. Rent controls
Rent control in the private rental market
Increasing in the degree of control
6
5
4
3
2
1
0
Source: Andrews, Caldera-Sanchez and Johansson (2011).
A6. Rent controls are stricter on social
housing than in the private rental market
Scale 0-6: Increasing in degree of rent control1
Private ren tal market
So cial h ousing
6
5
4
3
2
1
0
1. This indicator is a composite indicator of the extent of controls of rents, how increases in rents are
determined, and the permitted cost pass-through onto rents in each country.
Source: Andrews, Caldera-Sanchez and Johansson (2011).
A7. Design of social housing
regimes
Source: Andrews, Caldera-Sanchez and Johansson (2011).
B1. Residential mobility matters for
labour reallocation
Residential mobility and worker reallocation rates
Source: Andrews, Caldera-Sanchez and Johansson (2011).
B2. Residential mobility and
policies
Probability of moving and policies
Source: Andrews, Caldera-Sanchez and Johansson (2011).
C1. Skill mismatch: combining selfassessment with skill proficiency
Use micro-data from OECD Survey of Adult Skills (PIAAC) to:
1. Create a quantitative scale of the skills required to perform
the job for each occupation using the literacy scores of
well-matched workers – those who neither feel they have
the skills to perform a more demanding job nor require
further training to perform their current job satisfactorily.
2. Use this scale to identify min and max threshold values
(e.g., based on the 10th and 90th percentile), which bounds
what it is to be a well-matched worker.
3. Workers with scores lower (higher) than this min (max)
threshold in their occupation are under (over) skilled.
C2. Over-skilling more prevalent than
under-skilling
Percentage of workers with skill mismatch
On average, over-skilling is ~2½ times more likely than under-skilling
Source: Adalet McGowan, M and D. Andrews (2015), “Labour market mismatch and labour productivity:
evidence from PIAAC data ” OECD Economics Department Working Paper, No. 1209.
C3. Qualification mismatch
Percentage of workers with qualification mismatch
Source: Adalet McGowan, M and D. Andrews (2015), “Labour market mismatch and labour productivity:
evidence from PIAAC data ” OECD Economics Department Working Paper, No. 1209.