The Economist (2022-01-08)

TheEconomistJanuary8th 2022 61

Finance & economics

Residentialproperty

House party

N

ova scotia’slargest city is known for a

few  things:  a  big  national­security

conference that takes place every autumn;

a  huge  explosion  that  took  place  in  1917,

causing immense devastation; and a small

but impressive wine industry. It may soon

be  known  for  something  else.  Since  De­

cember  2019  house  prices  in  Halifax  have

risen  by  nearly  50%,  according  to  Knight

Frank, a property firm—a boom that only a

tiny  number  of  cities  have  bettered.  Sit

down  with  a  Haligonian  and  before  long

they  will  express  bafflement  at  how  their

city became so pricey. 

Local  factors  play  a  role.  Some  people

who had moved to distant Alberta to work

in  the  oil  industry  lost  their  jobs  in  2020

and moved back home. Out­of­towners are

investing in local property in the expecta­

tion  that  eastern  Canada  will  become  a

more desirable place to live as the climate

changes. Nevertheless, the broader trend is

mirrored  across  much  of  the  world  (see

chart  1).  The  imf’s  global  house­price  in­

dex, expressed in real terms, is well above

the peak reached before the 2007­09 finan­

cial  crisis.  American  housebuilders’  share

pricesareupby44%overthepastyear,

comparedwith27%fortheoverallstock­

market.EstateagentsfromHalifax’smom­

and­popshops to thesupermodellook­

alikesonNetflix’s“SellingSunset”,inLos

Angeles,haveneverhadit sogood.

Nowpeoplearewonderingwhetherthe

party isaboutto end.Governments are

windingdownstimulus.Peoplenolonger

have somuchspare cash tosplurge on

property, nowthat foreign holidays are

back and restaurants are open. Central

banks,worriedaboutsurginginflation,are

tighteningmonetarypolicy,includingby

raisinginterestrates.Initslatestfinancial­

stability report the imf warned that

“downsideriskstohousepricesappearto

besignificant”,andthat,ifthesewereto

materialise,pricesinrichcountriescould

fallbyupto14%.InNewZealand,where

priceshaverisenby24%inthepastyear,

thecentralbankisblunter.The“levelof

houseprices”,it says,is“unsustainable”.

Butisit?Certainlythereislittleevi­

dencesofarthattherecenttighteningin

fiscalandmonetarypolicyisprovokinga

slowdown.Inthethirdquarterof 2021 glo­

balhouse­pricegrowthrosetoanall­time

high.AlthoughNewZealand’scentralbank

hasraisedinterestratesby0.5percentage

pointssinceOctober,thereisonlythemil­

destindicationthathouse­pricegrowthis

slowing.Propertypricesarestillrisingin

theCzechRepublic,eventhoughthecen­

tralbankrepeatedlyraisedratesin2021.

Perhapsit isjusta matteroftimebefore

thehouseofcardscollapses.Butasa recent

paperbyGabrielChodorow­ReichofHar­

vardUniversityandcolleaguesexplains,

whatmightappeartobea housingbubble

mayinfactbetheproductoffundamental

economicshifts.Thepapershowsthatthe

monumental house­price increases in

Americaintheearlytomid­2000swere

largelya consequenceoffactorssuchasur­

banrevitalisation,growingpreferencesfor

H ALIFAX, CANADA

How long can the global housing boom last?

→Alsointhissection

62 Europe’sgreenstandard

63 ProgressiveDemocratsv banks

64 Theneweconomicconsensus

64 China’snextbankingdisaster?

65 Personalisedstockindices

66 Buttonwood:Gold’slostlustre

67 Freeexchange:TheIMFandArgentina

High rise

House prices, % change on a year earlier

Index of 31 economies

Sources: Bloomberg; JPMorgan Chase; MSCI

1

12

9

6

3

0

-3

-6

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