The Routledge Companion to International Housing Markets

Magnus Andersson, Peter Palm, Helena Bohman, Béatrice Balivet, Omokolade Akinsomi, Omokolade Akinsomi, Magnus Andersson, Béatrice Balivet, Helena Bohman, Peter Palm

• Verlag: Routledge
• Jahr: 2022
• ISBN:
  9781000591743
• Auflage: 1
• Thema: Commerce
• Thema: Immobilier

There is a lack of international comparative housing studies, possibly because it requires thorough knowledge of the real estate market in question. This book brings together scholars with knowledge of different national markets in order to facilitate comparisons for real estate and housing and urban studies scholars and practitioners. By studying international markets using new data as well as new analysis of existing data, the chapters in this book present insights into the institutional constraints on national housing markets. Specifically, the contributors seek to examine the role of institutional factors and their influence on transaction costs in these markets. Exhibiting a diverse range of geographical, legal, and economic perspectives, the countries are grouped together based on legal institutional similarities, and each group includes an introduction and a conclusion highlighting similarities and differences from the institutional perspective.

The book is divided into 3 parts:

Part I sets the theoretical context and the reasons for writing a book focusing on national housing markets.

Part II presents national markets from the perspective of the transaction process and covers Europe, North and South America, East Asia, the Pacific, and Africa.

Part III contains conclusions with a critical discussion on how to compare national housing markets and a reflection on future directions of housing markets in an increasingly competitive international environment.

The Routledge Companion to International Housing Markets is essential reading for academics and professionals in housing studies, real estate, economics, and urban studies.

PART I

DOI: 10.1201/9781003130383-1

1HOUSING MARKETS IN A GLOBALIZED ECONOMY

Magnus Andersson

DOI: 10.1201/9781003130383-2

Real estate constitutes a major part of individual or household wealth, and it is also an important driver of the economy. This is because every activity in the real estate sector requires space (land) for its setting and operation. The housing sector is important in national economies mainly because the way housing markets function is closely interlinked with many elements of the macroeconomy. This functioning of housing markets can be analyzed through standard models based on neoclassical economics. In these models, housing is approached as a one-dimensional homogeneous product, and the focus lies predominantly on the relationship of housing with the wider urban structure rather than on the operation of housing markets. First, in these models, the price of housing is determined by demand, as the supply of housing responds to changes in demand conditions. Given this, these models do not take into account the dimension that housing, like all real estate, is a heterogeneous commodity with complex and distinctive characteristics. Second, housing is geographically fixed. Therefore, as real estate cannot be moved, it is the households that need to relocate. This means that the availability or absence of housing in a location will influence the location decisions of households and therefore generate mobility. In conjunction with mobility, it is essential to consider not only market outcomes, for example, selling or buying a home, but also the conveyance process on the actual housing market of interest. It is through this process that real estate values are specified, information about the object is generated and made available on the market, legal interests are defined and enforced, uses are allocated, and development and redevelopment are stimulated. Developing a profound understanding of this process necessitates consideration of the institutional characteristics of the housing market. Furthermore, the spatial fixity of housing is why housing development gives rise to major planning debates, as there can be mismatches between the demand and supply of housing in different locations.

Housing markets in a globalized world

The housing market is a series of interconnected, location-specific submarkets on three different scales: international, regional, or urban. Analyses conducted on these spatial scales give rise to a variety of analytical and policy issues, for instance, how the study of international housing markets focuses primarily on the global interaction of housing markets. Many empirical studies explore the dynamic link between housing prices and vital macroeconomic variables (Adams & Füss, 2010; Aizenman & Jinjarak, 2009; Favilukis, Ludvigson, & Van Nieuwerburgh, 2017).

The study of regional housing markets highlights how the immovability of housing determines the housing market as regional yet provides significant differences in the level of housing market development in different regions. These studies, however, focus mainly on house price diffusion among different cities or regions, for example, Duran and Özdoğan (2020) explored the dynamics of regional housing prices in Turkey by including cross-regional determinants and economic and demographic variables together with geographic and cultural variables. Their findings show that seaside density and cultural activity density are the significant climate and cultural variables seldom seen in the literature. Lean and Smyth (2013) found that, in Malaysia, house prices divert from the most developed states to the less developed states. On a higher geographical scale, Gupta, André, and Gil-Alana (2015) examined the co-movement of house prices in the Euro area using a fractional co-integration approach. They found that co-integration does exist between some European countries, and the Euro area is co-integrated with Belgium, Germany, and France.

However, limited research has been devoted to an understanding of the housing market and to its relationship with the actors and institutions within the market by comparing different national housing markets. In attempting to do so, these complex characteristics of housing, combined with the high transaction costs that generally apply to the property market (legal fees, real estate agent fees, search costs), constitute sources of inefficiency in the functioning of the housing market. Traditional neoclassical space/access models do not consider these complexities. It is important to fill this knowledge gap, particularly as the world has experienced an unprecedented house price boom, not only in terms of magnitude and duration but also of synchronization across countries. Since the 2001 recession in the United States, house prices have been disconnected from the business cycle, with low interest rates and mortgage market innovations driving housing demand and mortgage equity. This development then imploded, with household debt reaching record levels in many economies. In some markets, sustained house price increases led to the belief that the upward trend in the housing market could go on forever. After prices started to fall in in the United States around the end of 2006, the subprime mortgage market collapsed, causing a deep financial crisis (Duca, Muellbauer, & Murphy, 2010). Overheated housing markets were adjusted dramatically, with large price falls. In recent years, the integration of increasingly deregulated international financial markets and general business cycle links have led to the co-movement of house prices across countries globally (Agnello & Schuknecht, 2011). However, strong similarities in house price fluctuations across different countries are not solely a characteristic of the recent house price boom: studies of house price data for the period 1970—1992 from OECD countries show that house price dynamics are interdependent, and there is no evidence supporting the existence of an international house price cycle (Englund & Ioannides, 1997). The degree of international housing market synchronization has been researched, with results showing that even though individual countries may exhibit differences in levels of house price growth, there are significant ties between housing markets of big European countries and the United States (Kim & Renaud, 2009). The effects of the recent housing boom and subsequent bust have been a clear illustration of this interconnectedness, in the context of an increasingly globalized economy and a time of financial liberalization and internationalization. These spillover effects of the housing bust that spread to many countries provided policy makers with strong evidence that prudential and forward-looking regulation had to be developed to reduce the risk in housing markets. Here, the consideration of the institutional characteristics of the housing market becomes pivotal.

A recent study by Devaney, Livingstone, McAllister, and Nanda (2017) analyzes international variations in transaction processes and costs in commercial real estate markets. Globally, transactions involving development land sales account for a large proportion of market activity in commercial real estate markets and generate substantial fee income for real estate brokers. In this context, the results indicate a nuanced and intricate pattern of market conventions rather than any simple binary distinction between a universal, best-practice model and locally contingent models. The authors highlight the growing interest in comparative transaction processes and the operation of brokerage markets but also note few comparative investigations of such processes in an academic context. Focusing on transaction processes in housing markets, this book is situated in an area of growing interest: the transaction process of housing conveyances in a period of international integration.

The aim of this book is to analyze the transaction process and map the transaction costs in 27 countries around the world. Moreover, many of the country chapters include a regional overview of the national market by using the spatial pattern of regional price differences. The book provides an understanding of how similar, yet different, the various countries’ housing markets function, in terms of the transaction process. It also provides a comprehensive scheme where transaction costs, on the national level, are comparable between countries. In order to facilitate comparisons for scholars and practitioners of real estate markets, the analyses require a general framework. This book addresses international housing markets by studying national markets and mapping transaction processes for housing conveyances. National markets’ unique institutional constraints can serve as examples of why more integration is needed between different housing markets.

What role do institutions have on the transaction process ot housing conveyances? And what are the levels of transaction costs in terms of money and time? These are the questions posed at the level of national housing markets. This book adds to the literature on housing markets by focusing on many national markets. Understanding national housing markets can facilitate movements and integration between countries. Also, the national market chapters provide regional views on each country’s housing market.

The book is divided into three sections: Part I sets the theoretical context and the background reasons for writing a book focusing on national housing markets, given that commercial property markets are increasingly globalized by investment flows and have gained more attention from a global perspective. Also, housing markets are characterized by international mobility, as labour markets are increasingly becoming international. We address how institutional constraints serve as obstacles for more integration between national housing markets, and as a result, other markets. Part II presents national markets from the perspective of the transaction process. The context involves Europe, North and South America, East Asia and the Pacific, and Africa. The selection of countries is based on a diverse range of geographical, legal, and economic perspectives. The countries are grouped together using legal institutional similarities based on the three main legal systems: civil law, Nordic law and common law.

Each country group is introduced by way of explaining and discussing these institutional similarities. This will also facilitate the international comparison of the respective countries’ legal systems. The final section, Part III, discusses how to compare national housing markets and gives some conclusions, with a reflection on the current status of more integrated national markets in today’s global arena.

References

• Adams, Z., & Füss, R. (2010). Macroeconomic determinants of international housing markets. Journal of Housing Economics, 19(1), 38—50. doi: 10.1016/j.jhe.2009.10.005
• Agnello, L., & Schuknecht, L. (2011). Booms and busts in housing markets: Determinants and implications. Journal of Housing Economics, 20(3), 171—190. doi: 10.1016/j.jhe.2011.04.001
• Aizenman, J., & Jinjarak, Y. (2009). Current account patterns and national real estate markets. Journal of Urban Economics, 66(2), 75—89. doi: 10.1016/j.jue.2009.05.002
• Devaney, S., Livingstone, N., McAllister, P., & Nanda, A. (2017). Institutional convergence in real estate markets: Acomparative study of brokerage models and transaction costs. Journal of Real Estate Literature, 25(1), 169-188. doi: 10.1080/10835547.2017.12090446
• Duca, J. V., Muellbauer, J., & Murphy, A. (2010). Housing markets and the financial crisis of 2007—2009: Lessons for the future. Journal of Financial Stability, 6(4), 203—217. doi: 10.1016/j.jfs.2010.05.002
• Duran, H. E., & Özdoğan, H. (2020, July). Asymmetries across regional housing markets in Turkey. Journal of Economic Asymmetries, 22. doi: 10.1016/j.jeca.2020.e00178
• Englund, P., & Ioannides, Y. M. (1997). House price dynamics: An international empirical perspective. Journal of Housing Economics, 6(2), 119—136. doi: 10.1006/jhec.1997.0210
• Favilukis, J., Ludvigson, S. C., & Van Nieuwerburgh, S. (2017). The macroeconomic effects of housing wealth, housing finance, and limited risk sharing in general equilibrium. Journal of Political Economy, 125(1), 140-223. doi: 10.1086/689606
• Gupta, R., André, C., & Gil-Alana, L. (2015). Comovement in Euro area housing prices: A fractional cointegration approach. Urban Studies, 52(16), 3123—3143. doi: 10.1177/0042098014555629
• Kim, K. H., & Renaud, B. (2009). The global house price boom and its unwinding: An analysis and a commentary. Housing Studies, 24(1), 7—24. doi: 10.1080/02673030802550128
• Lean, H. H., & Smyth, R. (2013). Regional house prices and the ripple effect in Malaysia. Urban Studies, 50(5), 895-922. doi: 10.1177/0042098012459582

2A THEORETICAL FRAMEWORK FOR HOUSING CONVEYANCES ON NATIONAL MARKETS

Peter Gladoić Håkansson and Peter Palm

DOI: 10.1201/9781003130383-3

1. Introduction

As the property market becomes more global, so too have certain differences between national property markets become apparent. For example, the transaction processes of buying or selling look very different around the world. The transaction costs also differ depending on location, and this in turn influences residential mobility (see among others Caldera Sanchez & Andrews, 2011). Several studies on transaction costs and residential mobility have been conducted. One example is from van Ommeren and Leuvensteijn (2005), who found that a one percentage point increase in transaction costs reduces residential mobility by about 8% in the Netherlands. It is safe to say that all existing housing markets are to some extent regulated by state policies, and these policies, rules, and laws affect the transaction costs of moving. Therefore, it seems well motivated to take a closer look at the institutions that matter in national property markets, particularly those that determine the transaction costs. What are institutions? Why are they important? What do they do? And why do they differ?

2. Institutions

‘Old’ and ‘new’ institutional economics

The role of institutions has long been acknowledged within economic theory. Joseph Schumpeter (1883—1950), John Commons (1862—1945), and Thorstein Veblen (1857—1929) were among the first to acknowledge and emphasize the role of institutions. They criticized the neoclassical idea that the market economy is an independent and self-regulating system that strives towards equilibrium (Papageorgiou, Ioannis Katselidis, & Michaeli...