scholarly journals Financialization, real estate and COVID-19 in the UK

2020 ◽  
Author(s):  
Grace Blakeley
Keyword(s):  
Monetary Policy ◽  
Real Estate ◽  
Financial Markets ◽  
Housing Market ◽  
Negative Impact ◽  
House Prices ◽  
Wealth Inequality ◽  
The Uk

Abstract In the UK, financialization has transformed many areas of the economy, including the housing market. The deregulation of financial markets that took place from the 1980s onwards, combined with the privatization of social housing, has transformed UK real estate from an ordinary good, insulated to some extent from consumer and financial markets, into a valuable financial asset. The financialization of real estate has had a largely negative impact on the UK’s housing market, the wider economy and individual communities; wealth inequality, financial instability, gentrification and homelessness have all increased as the role of the financial sector in UK property has increased. The financial crisis only accelerated many of these trends as distressed real estate was bought up by investors in its wake, and as loose monetary policy pushed up house prices in the period after the crisis. The COVID-19 pandemic is only likely to exacerbate these issues; the UK is sleepwalking into a potential evictions crisis, and ongoing loose monetary policy is likely to prevent a significant and necessary correction in house prices over the long term.

scholarly journals The sources of house price change: identifying liquidity shocks to the housing market

2016 ◽  
Vol 9 (1) ◽  
pp. 98-120 ◽  
Author(s):  
Paloma Taltavull de La Paz ◽  
Michael White
Keyword(s):  
Monetary Policy ◽  
Housing Market ◽  
Error Correction ◽  
House Prices ◽  
Price Change ◽  
Housing Prices ◽  
House Price ◽  
Content Type ◽  
The Uk

Purpose The purpose of this paper is to examine the role of monetary liquidity in house price evolution through examining the Asset (housing) Inflation channel. It identifies the main channels of transmission affecting house prices from monetary supply channels to house price change, examining how the Asset Price channel transmits changes in M1 to housing prices in Spain and the UK. Design/methodology/approach The paper uses Vector Auto Regression (VAR) and Error Correction models to test the Asset Inflation channel in the UK and Spain from 1991 to 2013 in two steps. In the first step, the supply elasticity is estimated through the long-term relationship between house prices and stock supply. The second step estimates a Vector Error Correction (VEC) to explain house price dynamics conditioned on supply reactions. The latter is defined as a long-term inverse demand model where housing prices are controlled by fundamentals in each market. Models allow forecast testing using Choleski impulse responses methodology. Findings Several results are found. In the supply model, both countries show rapid convergence to equilibrium with a larger elasticity of supply in Spain than in the UK but with a short run effect of new supply on prices in the UK. Regarding the Asset Inflation Channel model, the paper finds evidence of the existence of a housing accelerator effect in Spain, but not in the UK where changes in liquidity fully impact house prices in one direction. Research limitations/implications Implications of findings are mainly to forecast the effects of Monetary Policy measures in different economies. Practical implications The model supports the evaluation of different impacts of monetary policy in territories. It shows that the same policy will have different impacts in different housing markets and therefore highlights the importance of examining each market separately to identify the appropriate policy interventions. Originality/value This is the first paper that estimates the impact of the Asset Inflation Channel on house prices that endogenises housing market conditions and compares effects and interrelationships in two different economies.

Regional economic divergence and house prices: a comparison of Germany and the UK

2019 ◽  
Vol 12 (4) ◽  
pp. 722-735
Author(s):  
Benedikt Blaseio ◽  
Colin Jones
Keyword(s):  
Human Capital ◽  
Housing Market ◽  
House Prices ◽  
House Price ◽  
Annual Data ◽  
Content Type ◽  
Economic Divergence ◽  
Price Trends ◽  
The Uk

Purpose Increasing regional wealth disparities have been explained by the role of agglomeration economies and the concentration of skilled mobile human capital. This paper aims to draw out the role of the housing market by considering the differential experience of Germany and the UK. Design/methodology/approach The empirical analysis is based on the comparison of regional house price trends in Germany and UK-based annual data from 1991 to 2015. Findings Regional house price inequality is found to have increased in both countries with the spatial concentration of skilled human capital. However, the main conclusion is that there are differential paths to regional house price inequality explained by the parameters of each country’s housing market. Originality/value The research is the first to compare and explain differential regional house price trends across countries.

scholarly journals Housing and Consumption in New Zealand:  A Financial Accelerator DSGE Model  and SVAR Analysis

2021 ◽  
Author(s):  
◽  
Andrew D Fung
Keyword(s):  
New Zealand ◽  
Housing Market ◽  
Open Economy ◽  
Government Spending ◽  
Negative Impact ◽  
House Prices ◽  
Small Open Economy ◽  
Financial Accelerator ◽  
Dsge Model

<p>This thesis examines the role of a financial accelerator mechanism for housing in the context of a small open economy. Following the seminal financial accelerator framework in a Dynamic Stochastic General Equilibrium (DSGE) model set out by Bernanke, Gertler and Gilchrist (1999) (BGG), Aoki, Proudman and Vlieghe (2002, 2002a, 2004) (APV) examine the role of the financial accelerator for the housing market. In my basic model (Chapter 2), I extend the analysis of APV from a closed economy to a small open economy in which imports are used as intermediate inputs into the production process and foreign demand for domestically produced goods is influenced by the real exchange rate. Unlike APV, I set the endowment of housing to be consistent with the nature of consumer behaviour, in that “rule of thumb” (ROT) consumers (who do not save) are renters, further differentiating them from “permanent income hypothesis” (PIH) consumers. I find that in contrast to APV, the financial accelerator effect does not increase the responsiveness of consumption and output to various shocks. This is due in part to the endowment of housing being restricted to PIH households. I find that the presence of a financial accelerator increases the responsiveness of the housing market to nominal interest rate, technology, and foreign shocks. Moreover, even though the financial accelerator reduces the reaction of the nonhousing variables to shocks, there is still a positive correlation between house prices and consumption, consistent with the widely observed empirical relationship between the two. Furthermore, given that PIH households have access to the capital markets, the model does not rely on a wealth effect to generate this correlation even though homeowners can engage in housing equity withdrawal. In Chapter 3 I extend the DSGE model to include a more fully specified fiscal sector. I find that consistent with the RBC view of fiscal policy, a positive government spending shock has a negative impact on the housing market. Using the type of fiscal rule proposed by Gal´ı, Vall´es and L´opez-Salido (2004), I find that government spending crowds out private consumption, including the purchase of housing services and has a negative impact on house prices. Despite the positive short-term impact on output, tax increases that would ultimately fund the spending shock act as a drag on consumption. In Chapter 4 I examine the New Zealand empirical data in order to see whether a financial accelerator effect can be detected. Using a small seven variable Structural Vector Auto-Regression model I find that shocks to house prices do not have a significant impact on the mortgage rate-benchmark interest rate spread in the manner suggested by the financial accelerator model. This may be due to other costs (such as funding mortgage lending through the international swap market by New Zealand banks) having a significant impact on the setting of mortgage rates and thus the spread. I also find that government spending does not appear to have a significant impact on house prices and the median response is mildly negative - consistent with the result from the DSGE model. Nevertheless, the SVAR does detect a significant relationship between shocks to house prices and household consumption.</p>

scholarly journals International Real Estate Review

2015 ◽  
Vol 18 (4) ◽  
pp. 429-454
Author(s):  
Svein Olav Krakstad ◽  
Keyword(s):  
Real Estate ◽  
Housing Market ◽  
House Prices ◽  
Cost Price ◽  
Building Cost ◽  
Long Run ◽  
Cointegration Tests ◽  
Land Cost ◽  
Unique Dataset

This study analyzes the housing market by using four key ratios: price-rent, price-building cost, price-land cost and price-wage. We attempt to determine how they work together in order to explain the housing market. A unique dataset from Norway is used to investigate the long-run movements of the variables. In order to analyze these, we have created Norwegian hedonic indices for building and land costs. The cointegration tests confirm that there are long-term relationships between these ratios. The results show that these ratios affect future movement in house prices, rents, and building and land costs. Wages are weakly exogenous in the system and therefore drive house prices, rents, and building and land costs in the long run.

scholarly journals Housing and Consumption in New Zealand:  A Financial Accelerator DSGE Model  and SVAR Analysis

2021 ◽  
Author(s):  
◽  
Andrew D Fung
Keyword(s):  
New Zealand ◽  
Housing Market ◽  
Open Economy ◽  
Government Spending ◽  
Negative Impact ◽  
House Prices ◽  
Small Open Economy ◽  
Financial Accelerator ◽  
Dsge Model

<p>This thesis examines the role of a financial accelerator mechanism for housing in the context of a small open economy. Following the seminal financial accelerator framework in a Dynamic Stochastic General Equilibrium (DSGE) model set out by Bernanke, Gertler and Gilchrist (1999) (BGG), Aoki, Proudman and Vlieghe (2002, 2002a, 2004) (APV) examine the role of the financial accelerator for the housing market. In my basic model (Chapter 2), I extend the analysis of APV from a closed economy to a small open economy in which imports are used as intermediate inputs into the production process and foreign demand for domestically produced goods is influenced by the real exchange rate. Unlike APV, I set the endowment of housing to be consistent with the nature of consumer behaviour, in that “rule of thumb” (ROT) consumers (who do not save) are renters, further differentiating them from “permanent income hypothesis” (PIH) consumers. I find that in contrast to APV, the financial accelerator effect does not increase the responsiveness of consumption and output to various shocks. This is due in part to the endowment of housing being restricted to PIH households. I find that the presence of a financial accelerator increases the responsiveness of the housing market to nominal interest rate, technology, and foreign shocks. Moreover, even though the financial accelerator reduces the reaction of the nonhousing variables to shocks, there is still a positive correlation between house prices and consumption, consistent with the widely observed empirical relationship between the two. Furthermore, given that PIH households have access to the capital markets, the model does not rely on a wealth effect to generate this correlation even though homeowners can engage in housing equity withdrawal. In Chapter 3 I extend the DSGE model to include a more fully specified fiscal sector. I find that consistent with the RBC view of fiscal policy, a positive government spending shock has a negative impact on the housing market. Using the type of fiscal rule proposed by Gal´ı, Vall´es and L´opez-Salido (2004), I find that government spending crowds out private consumption, including the purchase of housing services and has a negative impact on house prices. Despite the positive short-term impact on output, tax increases that would ultimately fund the spending shock act as a drag on consumption. In Chapter 4 I examine the New Zealand empirical data in order to see whether a financial accelerator effect can be detected. Using a small seven variable Structural Vector Auto-Regression model I find that shocks to house prices do not have a significant impact on the mortgage rate-benchmark interest rate spread in the manner suggested by the financial accelerator model. This may be due to other costs (such as funding mortgage lending through the international swap market by New Zealand banks) having a significant impact on the setting of mortgage rates and thus the spread. I also find that government spending does not appear to have a significant impact on house prices and the median response is mildly negative - consistent with the result from the DSGE model. Nevertheless, the SVAR does detect a significant relationship between shocks to house prices and household consumption.</p>

Impact of FII’s and FDI’s on Indian Stock Market

2016 ◽  
Vol 1 (1) ◽  
Author(s):  
Dr. Kamlesh Kumar Shukla
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Global Economy ◽  
Short Term ◽  
Earnings Growth ◽  
The Past ◽  
Bull Market ◽  
Indian Stock Market

FIIs are companies registered outside India. In the past four years there has been more than $41 trillion worth of FII funds invested in India. This has been one of the major reasons on the bull market witnessing unprecedented growth with the BSE Sensex rising 221% in absolute terms in this span. The present downfall of the market too is influenced as these FIIs are taking out some of their invested money. Though there is a lot of value in this market and fundamentally there is a lot of upside in it. For long-term value investors, there’s little because for worry but short term traders are adversely getting affected by the role of FIIs are playing at the present. Investors should not panic and should remain invested in sectors where underlying earnings growth has little to do with financial markets or global economy.

Real Estate

2017 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Real Estate ◽  
Great Recession ◽  
House Prices ◽  
Borrowing Constraints ◽  
Macroeconomic Models ◽  
Land Prices ◽  
The Great Recession ◽  
Quantitative Importance

Chapter 6 examines real estate as a neglected feature of actual economies. It begins with an empirical overview demonstrating the preeminent role of land as a part of nonfinancial wealth. Whereas many macroeconomic models represent nonfinancial wealth by a symbol K that is interpreted as machines and equipment (if not robots), the text makes clear that such items are of minor quantitative importance. In contemporary economies, nonfinancial wealth consists chiefly of real estate. This is the proper reason so many analysts conjecture a link between house prices and the Great Recession. Changes in house prices (primarily changes in land prices) operate on the economy through their influence on nonfinancial wealth. Nonfinancial wealth affects consumption directly and investment indirectly since it relaxes or tightens borrowing constraints. Building on the results obtained in previous chapters, the text studies housing manias and leverage cycles and relates its main findings to US data.

scholarly journals French Firms and COVID-19: Do the Debt Status, Crisis Management System, and Monetary Policy Play a Role?

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Mina Sami
Keyword(s):  
Monetary Policy ◽  
Stock Returns ◽  
Crisis Management ◽  
Management System ◽  
Daily Growth ◽  
Listed Firms ◽  
Study Results ◽  
Major Outbreak

Abstract This study has two main objectives: first, it assesses the effect of outbreak pandemic diseases on the French firms’ stock returns by considering the sector of activity as the main center of analysis. Second, it investigates the role of the crisis management system, firm debt strategy, and monetary policy in dealing with the adverse shocks of the major outbreak of the COVID-19. The study results can be summarized as follows: (1) the daily growth in COVID-19 cases and deaths are associated with lower stock returns of the listed firms, especially for the firms operating in the energy, industrial and health care sectors. In contrast, telecommunication and consumer sectors are not significantly affected. (2) The pandemic’s adverse effect is much more tolerant with the French firms with an efficient crisis management system and low long-term debt commitments than the firms that do not have such a system and engaged with long term debts. (3) Euribor rates and monetary policy are still playing an essential role during the pandemic period.

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