housing markets, public policies and growth: evidence from oecd countries dan andrews senior...
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HOUSING MARKETS , PUBLIC POLICIES AND GROWTH: EVIDENCE FROM OECD COUNTRIES
Dan AndrewsSenior Economist & Head of Productivity WorkStreamStructural Policy Analysis DivisionEconomics Department, OECD
European Commission and ESRI Housing ConferenceDublin, 6 November 2015
• 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
1. Roadmap
I. Housing Markets and Public Policy
Variations in responsiveness of new housing supply to changes in prices
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 reflect recent developments in housing markets (such as the large stock of unsold houses resulting from the construction boom starting in 2000 and peaking in 2007-09), only slightly increases the estimate of the elasticity of housing supply from 0.45 to 0.58. Estimation period early 1980s to early 2000s. See Caldera Sánchez and Johansson (2010) for details.
0.0
0.5
1.0
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2.0
2.5
Estimates of the long-run price-elasticity of new housing supply, 1980’s - 2007
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
CHE
NLDAUT ITA
BELFRA GBRDEUPOL
ESPNOR
AUS IRLNZL
FIN JPN
CAN DNK
SWE
USA
ISR
0.0
0.5
1.0
1.5
2.0
2.5
0 100 200 300 400
Population density2
Supply responsiveness¹
Correlation coeff icient: -0.45**
CHENLDAUT ITA
BELFRAGBRDEU POL
ESPNOR
AUSIRLNZL
FIN JPN
CANDNK
SWE
USA
ISR
0.0
0.5
1.0
1.5
2.0
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0 50 100 150 200 250
Supply responsiveness1
Number of days to obtain a building permit³
Correlation coeff icient: -0.56***
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.
• Despite a weak economic rationale, housing is often tax-
favoured 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 A2-
A3)
• Transaction taxes distort housing transactions and create
lock-in effects, esp. for financially constrained younger
people:
– Cut transaction taxes and scale-up recurrent taxes on immovable
property (slide. A4)
Housing taxation
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).
• 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.
Rental market regulations and social housing
Rent market regulationsTenant-landlord regulations in the private rental market
Increasing in protection of tenants
0
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2
3
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Source: Andrews, Caldera-Sanchez and Johansson (2011).
Index=Ease of eviction + tenure security + deposit requirements
II. Housing Policies – Links with Productivity
Residential mobility varies across countries
Percentage of households that changed residence w ithin the last 2 years
0
5
10
15
20
25
30
%
Percentage of households that changed residence within the last 2 years
Source: Andrews, Caldera-Sanchez and Johansson (2011).
Residential mobility correlated with:• Worker reallocation rates (slide B1)• Housing policies (Supply, trans tax, rent regulations; slide B2)
Skill mismatch as a constraint on labour productivity
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, particularly over-skilling, is harmful for productivity because it constrains the ability of innovative firms to attract skilled workers and grow
Skill mismatch results from policy-induced 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.
New book: out now!
Available at:
http://www.oecd.org/economy/the-future-of-productivity.htm
Book + 5 page policy note + technical paper + videos
Authors:
Muge Adalet McGowan
Dan Andrews
Chiara Criscuolo
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
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.
Estimated wedge between the market interest rate and the after-tax debt financing cost of housing; increasing in the degree of tax relief
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
Source: Andrews, Caldera-Sanchez and Johansson (2011).
1.
2.
Increasing the estimated supply elasticity from the level observed in Ireland to the level in Canada.
Reducing the tax relief on mortgage debt financing costs from the level observed in Netherlands to the level in Sweden.
The policy experiments are roughly equivalent to the impact of a one standard deviation change in the policy variables ofinterest on real house price volatility. Estimates are based on random effects panel regressions for betw een 16 and 20 OECDcountries, over the period circa 1980-2005. The dependent variable is the standard deviation in annual real house price grow thand the model also controls for macroeconomic volatility and time f ixed effects (see Andrew s (2010) for details).
Over the sample period, loan to value ratios range from a minimum of 56% to a maximum of 110% in OECD countries.
Real house price volatility can be reduced by…
25%
20%
19%
11%
Policy experiment
A further improvement in banking supervision equivalent to that observed on average in OECD over the 1990-2005 period.
Reducing the maximum loan to value ratio by 10 percentage points.2
A4. Taxes on property are low by international standards
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LUX
AUT
CZE
MEX
CHE
TUR
EST
DEU
NOR
SVK
CHL
HUN
SVN
FIN
NLD
KOR
PRT
SWE
GRC
IRL
ESP
OECD IT
APO
LBE
LAU
SDN
KIS
LNZ
LJP
NIS
RFR
AUS
ACA
NGB
R
% of GDP % of GDP
Share of property taxes as % of GDP, 20111
1. Or nearest yearSource: OECD Revenue Statistics
A5. Rent controlsRent control in the private rental market
Increasing in the degree of control
Source: Andrews, Caldera-Sanchez and Johansson (2011).
0
1
2
3
4
5
6
A6. Rent controls are stricter on social housing than in the private rental market
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1
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Private rental market Social housing
Scale 0-6: Increasing in degree of rent control1
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 self-assessment 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-skillingSource: 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.