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News : Property Last Updated: Jan 21, 2011 - 6:46 AM


Poorly managed housing markets played a key role in triggering the recent global financial crisis says OECD report
By Finfacts Team
Jan 21, 2011 - 5:41 AM

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Poorly managed housing markets played a key role in triggering the recent global financial crisis says OECD report

Poorly managed housing markets played a key role in triggering the recent global financial crisis and may be slowing the recovery. A new OECD study offers governments a roadmap for sounder housing policies.

Housing and the Economy: Policies for Renovation says reforms to financial sector regulation, taxation,  land-use, rental market rules and the provision of social housing will improve both the real estate sector and spill-over to the economy as a whole. 

“OECD countries have seen the damage caused by badly designed policies through their effects on housing markets,” said OECD Secretary-General Angel Gurria. “As we search for new sources of growth, as we seek to restore trust in our financial sectors, as we try to green our economies, policies related to housing can have a huge impact on our future.”

The OECD says that easy credit over the past two decades amplified price volatility, with real housing price jumps of  90% or more in Australia, Belgium, Finland, Ireland, Netherlands, New Zealand, Norway, Spain and the United Kingdom over the study period. Deregulation and innovation in  mortgage markets – coupled with inadequate supervisory frameworks - -  contributed to a significant relaxation in lending standards, an increase in non-performing loans and the sub-prime crisis.

The report, a chapter in the OECD’s forthcoming Going for Growth publication, suggests that future innovations in mortgage markets must be coupled with tighter regulatory oversight and stronger prudential regulations.

The report also shows how policies favouring homeownership over rental markets have reduced residential and labour mobility. This is particularly true for households with mortgages that went into negative equity positions due to the crisis. Low mobility risks undermining the ongoing jobs recovery.

Other key policy reforms should:

  • Increase responsiveness of new housing supply to market demand. Countries should reassess licensing procedures that limit new housing starts and reconsider land-use regulations that unduly prevent development. More responsive supply can limit price volatility, excessive price increases and encourage labour mobility.
     
  • Eliminate tax policies that favour housing over other investments. Favourable tax treatment lowers borrowing costs, encouraging excessive investment, speculation and price volatility and limit mobility. Tax breaks are capitalized in house prices, preventing some lower-income households from home ownership. Property taxes should better reflect market values.
     
  • Encourage labour mobility. Lowering transaction costs would enable more financially-constrained households to move. Redesigning strict rent control regulations could increase housing supply. Better targeted social housing could improve access  for households in need.Policymakers should avoid concentrating low-income households  Portable housing allowances may be preferable over direct provision of housing.

The Organisation for Economic Cooperation and Development, is based in Paris and it's a think-tank for 34 mainly developed country governments. OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Commission takes part in the work of the OECD.

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