Resilience of national housing systems in times of a credit crunch

Transcription

1 Resilience of national housing systems in times of a credit crunch Presentation at the session Global economic crisis and housing policy response Academy of Sciences of the Czech Republic Institute of Sociology Prague, October 20, 2011 Hugo Priemus, professor emeritus at Delft University of Technology Jaffalaan 9, 2628 BX Delft, The Netherlands h.priemus@tudelft.nl 1

2 Aftermath of financial crises: general findings Reinhart and Rogoff (2008a; 2008b; 2009c) 20 financial crises post-wwii Advanced and transitional economies: output (GDP) 9% fall in down phase (two years) unemployment + 7% point in down phase (four years) government debt + 86% = defining characteristic of the aftermath of banking crises real estate prices 55% in down phase (3½ years) house prices 35,5% in down phase (6 years) 2

3 Decline in real house prices + duration of downturn 19 post-war and 2 pre-war crises USA: 28% price decline (Case-Shiller index) = 2x Price decline during Great Depression Analysis by Reinhart and Rogoff excellent template for interpreting the impact of the current banking crisis 3

4 Figure 1 Economic Indicators around Peaks of Current and Previous Recessions 4

5 Figure 2 Highly Synchronized Recessions Source: IMF,

6 Figure 3 Highly Synchronized Recessions Are Different Source: IMF,

7 Figure 4 House prices in Europe, Euro area % 7 Source: CPB, : Fourth Quartile 2008 ª Huge differences -3 within EU Nether- Italy France Ger- Finland Spain UK Ireland Lands Q3 Q3 many Q3

8 Figure 5 Housing tenures in the EU, 2008 Source: CECODHAS European Social Housing Observatory (2008) Van Bortel, 2011: 14. 8

9 Table 1 Tenure of housing stock in nine European countries (horizontal %) Owner-occupied sector Commercial rented sector Social rented sector Netherlands Austria Denmark Sweden United Kingdom France Ireland Germany Hungary Source: Whitehead & Scanlon (2007); Besseling et al. (2008:14) 9 OTB Research Institute for Housing, Urban and Mobility Studies

10 Table 2 Van Bortel, 2011:

11 Figure 6 Government debt in USA and some EUcountries, New stage in crisis: from credit crunch to debt crisis US/EU-countries Huge problems: US Greece Ireland Portugal Source: de Volkskrant, 2011, April

12 Figure 7 Figure 8 Source: Time, March 14, 2011: 9. 12

13 Dutch banking problems: imported from USA Mid-2007: first major problems on the US mortgage market, in particular on subprime market. 400 basis points higher interest; variable interest rates; high risks: anticipated real estate price increases. Share subprime from 1 / 10 to 1 / 4. Price decline October 2007 October 2008 : 18% Three million foreclosures in one year 13

14 Secundary mortgage markets. Securitisation, also of subprime mortgages exported to UK, Italy, Spain, The Netherlands. Also in the Netherlands system banks in trouble: ING, ABN-AMRO SNS Reaal. Insurance companies: Fortis, Aegon, Massive state support. Banks tightened conditions. Deleverage. Loan: from 6x annual income to 4 / 4½x annual income. From banking crisis to recession of real economy. 14

15 Figure 9 Size banking sector in % of GDP, 2009 Source: De Nederlandsche Bank; NRC Handelsblad, 27 april 2011: 31. Dutch financial sector: 3,5 x GDP (after Ireland, UK and Switzerland). 15

16 Sharp fall in housing construction; slight fall in property prices 2007 and 2008: about 80,000 housing units built 2009: about 72,000 housing units built 2010: finally about 56,000 housing units built Credit crunch; impacts on housing market: Residential mobility is slowing down (-10%, in particular families); Fewer divorces, fewer new households; Demand from owner-occupation to renting; Demand from expensive to cheap. More constraints in long term finance. 16

17 Figure 10 Price sold dwellings, in % of earlier quarter, NL, Bron: Van der Walle, 2011: OTB Research Institute for Housing, Urban and Mobility Studies

18 Figure 11 Time for selling dwellings, in days, NL, Bron: Van der Walle, 2011: OTB Research Institute for Housing, Urban and Mobility Studies

19 Figure 12 Volume sold owner-occupied dwellings in housing stock, NL, per 12 months, Bron: CBS, Kadaster, ESB, 96, 18 februari 2011: OTB Research Institute for Housing, Urban and Mobility Studies

20 Figure 13 Secondary mortgages: packages sold to financial institutions, based in The Netherlands, Bron: Markt voor hypotheekleningen weer op niveau van voor de crisis, NRC Handelsblad, maart 20

21 Housing associations: 32% of total housing stock. Rich sector, capital rich; cash poor. No fixed ROI targets Public banks: Municipalities Bank and Water Board Bank (both AAA), are willing to finance housing projects of housing associations. Their market share rose from about 60% to more than 90%. Countercyclical construction activities. Housing associations will only consider taking over commercial housing projects, if this fits into their business operations and the local building remit. 21

22 Is the Dutch economy following the general pattern of bank crises? Short intense contraction, followed by rapid recovery (V-shape). Or W-shape: deep contraction-short period of recovering second major contraction final recovery? Unemployment and government: long term problems. Five / six years of crisis: seems plausible IMF: most severe cases: banking crises and highly synchronized crises. Current crisis meets both criteria. 22

23 Building blocks for housing finance reform in the Netherlands (1)Rationing of demand by equilibrium prices: not acceptable on housing markets: housing allowances as an entitlement for tenants and owner occupiers. (2) Housing allowance: amount related to household income, household composition and current rent of the housing unit involved, or related to average price level in the region. 23 OTB Research Institute for Housing, Urban and Mobility Studies

24 (3) No other compelling reasons for subsidies. Perverse impact on sustainability and energy consumption. Abandon transfer tax (which is penalty on mobility). Mortgage debt in the Netherlands per capita is now the highest in the EU. Abandon step by step property subsidies and in particular tax relief. This will reduce prices with 20%. Impact: room for a reduction of income tax. Rents: step by step increase to free market level. 24 OTB Research Institute for Housing, Urban and Mobility Studies

25 What will be the position of housing associations in such a new situation? Many economist say: they will transform into commercial providers of housing. There are good reasons to maintain housing associations with a combination of social and market activities: - priority to households with special needs/modest incomes - no stigma; no spatial segregation - obligation to spend surpluses only for housing goals: including restructuring of impopular housing districts - best practice in improving energy efficiency in the housing stock 25 OTB Research Institute for Housing, Urban and Mobility Studies

26 Housing associations: moving to tenure-neutral institutions: tenants can buy their home at a regulated (reduced) price. Housing associations guarantee that they will buy these properties if the occupants want to finish home-ownership (Koopgarant). Continuing the role of housing associations more market-oriented and more tenure-neutral could safeguard the unique culture of Dutch social housing. 26 OTB Research Institute for Housing, Urban and Mobility Studies