Can Loan Control Solve the Unaffordable Housing Problem?
NOT.OUSE Award In a rich world, it grows at the fastest rate in 30 years. According to figures released on September 28, Americans rose a record 19.7% in July. House prices measured against income are three-quarters above the long-term average. OECD Country. Almost all policymakers are pushing more and more to make housing more affordable.
Higher interest rates will lower house prices relative to income by making mortgage services more expensive and slowing down demand for housing. However, raising interest rates to cool the housing market now risks jeopardizing the economic recovery after the blockade. In the eyes of some, it may be more promising to strengthen the “macroprudential” tools available to central banks and financial regulators seeking to limit subprime mortgages.
On September 23, the Reserve Bank of New Zealand tightened its third macro-prudential housing policy this year, saying past tightening was not enough to tackle unsustainable house prices. Regulators in several other countries, including France, have also become more stringent this year. While these tools are designed to be more resilient to lenders and borrowers by curbing debt growth, they are less likely to be used to directly control house prices.
Macroprudential policy has a long history and encompasses a variety of means, including capital and reserve requirements, direct control of loan rates and quantities. Policies targeting the housing market may include limiting the amount of loans a bank can provide with a high loan-to-value ratio (LTV) Or the loan-to-income ratio. LTV Tools are the most common. Tools have been deployed in more than 20 countries in Europe, and the use of the tools has increased significantly since the global financial crisis of 2007-2009.
These checks may have been one of the reasons that last year’s covid-related recession did not trigger a financial crisis by limiting credit growth. Growth in mortgage loans and growth in house prices often interact with each other, so you may want to step up your loan management to improve affordability. However, there are three reasons why this policy is wrong.
First, research suggests that the impact on home prices doesn’t appear to be large enough to make a big difference in affordability. An interesting example is a recent treatise by Steven Laufer of the Brookdale Institute and Nitzan Tzur-Ilan of Northwestern University at the time. LTV A policy introduced in Israel in 2010. Faced with high inflation in house prices, the central bank has asked lenders to hold additional capital on loans. LTV The ratio is 60% or more, but only rentals of 800,000 shekels (about $ 220,000) or more are available. This allowed the author to compare the increase in house prices to be measured with the increase in prices in other markets. We have found that this measure reduces the total price of Israeli homes by less than 0.6%.
In addition, loan management generally makes mortgages more expensive for affected borrowers by providing them with credit. Therefore, even though the prices are slightly lower, the houses may not be more affordable. For example, according to a survey in European countries, average mortgage rates increase when: LTV The policy will be strengthened.
The third reason why macroprudential policy is not suited to improving affordability LTV Management can have a disproportionate impact on disadvantaged households. According to an Israeli study, they believe the biggest negative impact on house prices is in the less desirable neighborhoods of more expensive cities, as credit-strapped households tend to buy in these areas. I am. A previous article by Ms Tzur-Ilan concluded that affected borrowers in residential areas around Tel Aviv had to move an average of 4-7 km away from their next place of work. LTV-Faced with stricter policies and additional travel time of up to an hour per day. These side effects can be justified if the ultimate goal is a more resilient financial system. However, if policies aim to lower house prices to help poor households, they are counterproductive and can address existing inequalities.
Over the past decade, macroprudential policies, including housing tools, have played a major role in restraining borrowing growth and making the financial system more secure in some countries. However, the tools were never designed to improve the affordability of homes and are not suitable for the job. People dissatisfied with the dramatic rise in house prices may want to lobby the government rather than financial regulators to fix the problem. ■■
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This article appeared in the print version of the Treasury and Economics section under the title “Home Truth”.
Can Loan Control Solve the Unaffordable Housing Problem? Source link Can Loan Control Solve the Unaffordable Housing Problem?