Runaway residential real estate prices is bad news for conservatives

From the Politico (8th March 2021):

If there aren’t enough homes to meet that demand, though, the largest generation in the country won’t be able to start building equity, which will in turn delay other financial decisions. Despite making up over a third of the workforce, millennials own less than 6 percent of all U.S. wealth, according to Federal Reserve data.

The delays will have long-term societal impacts. Even before the pandemic struck, more than 1 in 5 millennials — 21.9 percent in 2019 — lived with their parents, up from 11.7 percent in 2001, according to a Zillow analysis of census data. Partially as a result, millennials are significantly behind previous generations in forming families. [Link]

I was reminded of an article I read months ago. It turns out, it was published on my 57th birthday in unherd.com

young people are not becoming more conservative as they reach middle age, or at least are doing so very slowly, countering a historic trend which had much to do with social patterns that no longer exist.

Conservatism is heavily contingent on lifestyle. Among Americans, for example, marriage (and motherhood) is the single biggest factor determining how white women vote, the country’s marriage gap being far larger than its gender gap (although Donald Trump, being utterly repulsive to a lot of women, did narrow this).

Liberalism, with its focus on the individual and the individual’s limitless potential, has always been associated with singledom. Most of its founding philosophical fathers were childless men, including Locke, Mill, Spinoza, Bentham, Hume and Adam Smith. (Jean-Jacques Rousseau had five children but abandoned them all to the death sentence of orphanages.)

Marriage rates are affected by a number of cultural factors, especially religion, but the simple cost of having children is also an obvious problem. Children have become more expensive, and the biggest component is runaway housing costs; in the US there is a clear correlation between high house prices and support for the Democrats.

In Britain, Conservative economic policy was for many years to encourage rising house prices as a nest egg, but each increase in value, aided by our strict planning laws, was decreasing the number of future Tories. Now, highly-expensive London is a sea of red and it’s only a matter of time before that starts to spread into the Home Counties.

Left-wing parties win where land is expensive, and cities comprise the most expensive real estate of all, and they are everywhere more liberal than rural areas. [Link]

Much ado about macroprudential

Gillian Tett wrote:

Ireland, for example, has tried to cool a housing boom by introducing rules that make it harder to extend mortgages. Canada and Hong Kong have used similar measures. But these homegrown measures have not been particularly effective at pricking domestic price bubbles when global liquidity was abundant. They are even less likely to work in reverse if the global tsunami of liquidity suddenly dries up. [Link]

What is important and useful about her article is the reminder – not that it is needed for those who are not pre-committed – that macroprudential measures in domestic economies have only limited imapct, if at all, in the face of global liquidity – an outcome of policy spillovers from advanced economies. There is no substitute for allowing interest rates to reflect the true risk-adjusted cost of capital if asset price bubbles are to be avoided or moderated. Finally, macroprudential measures in emerging and small economies work only if interest rates in advanced nations are not working to countremand their effects as has been the case until now.

Down and Under now?

These two headlines pretty much summarise the story of the Australian housing bubble:

  • Value of nation’s homes equivalent to four times the economy
  • Risk that ‘a minor shock could become far more significant’

But, the full story is well worth a read. The charts are great (ht: Rohit Rajendran). Do not miss noticing how big the housing bubble in New Zealand too is.

The Australian Government announced a Royal Commission to inquire into the conduct of its banks. The Bloomberg story on it lists the following ‘triggers’ for it:

The main opposition Labor party has for months been demanding a royal commission into the finance industry, amid a string of scandals ranging from misleading financial advice, attempted rate-rigging and alleged breaches of anti-money laundering laws. Pressure was growing on Turnbull to hold an inquiry, with some lawmakers in his Liberal-National coalition threatening to force a vote in parliament next week. [Link]

The Opposition leader well captures the ‘capture’ here:

Opposition Leader Bill Shorten said Mr Turnbull had spent 601 days fighting Labor’s call for a royal commission into the banking and financial sector.

“It says everything about Turnbull’s values and priorities that he only agreed to Labor’s royal commission when the banks told him he had to,” he said in a statement.

“He ignored the pleas of families and small businesses, he rejected the words of whistle-blowers. But when the big banks wrote him a letter, he folded the same day.” [Link]

The goose is beginning to get cooked well ‘Down Under’, regardless of the convincing win for Australia in the first Ashes Test at Brisbane.