HCOMMITMENT COSTS across the rich world are increasing rapidly. In America and Australia, prices have risen by almost 20% in the past 12 months, and rents are also on the rise. Over the past year, prices in New Zealand have increased at a rate of over NZ $ 2,000 ($ 1,400) per week. Costs in big cities have been rising for years, driven by a mix of cheap loans and a shortage of new homes. The pandemic made matters worse; closures boosted demand for larger housing, while labor and material shortages limited housing supply. As they try to cut costs, governments are throwing all kinds of ideas on the problem.
One set of policies is to help first-time buyers and renters, while discouraging other types of potential homeowners. Spain, for example, wants to get young people out of their parents’ house and offers them nearly $ 300 a month in rent. In South Korea, President Moon Jae-in introduced more than 20 different regulations, including stricter lending rules and punitive taxes on expensive homes.
Everywhere else, authorities are trying to deter foreign buyers. Justin Trudeau, the Prime Minister of Canada, pledged a two-year ban on home purchases by non-residents during his re-election campaign in August. New Zealand’s ban on foreigners from buying homes came into effect in 2018 after the controversial purchase of a ranch in the country by Silicon Valley heavyweight Peter Thiel. Yet while these policies have been successful in deterring foreigners, they have missed the mark on affordability. House prices in New Zealand have risen even as purchases by overseas buyers have dried up. Mr. Moon’s efforts have also failed to curb the sharp price increases. Apartment prices in Seoul rose by more than a third during his presidency.
This could explain why the focus in South Korea has shifted towards supply. This year, the government unveiled a plan to build 83,000 homes in the capital. America has pledged to subsidize construction. Hong Kong officials, who blame unaffordable housing for the anti-government protests that erupted in 2019, want to cut costs by building a new city near the territory’s border with mainland China. The development could house up to 2.5 million people, or one-third of Hong Kong’s population. But Britain’s experience shows how difficult expanding housing supply can be. The government wanted to review town planning rules to open up more land for housing construction. Then the fears of a backlash from NIMBY voters and disagreements within the ruling Conservative Party prompted rethinking.
Faced with the failures of demand management and the political difficulties of expanding supply, some governments are turning instead to a more opportune target: the big landowners. In October, Spain’s left-wing coalition agreed on a housing bill aimed at cracking down on investment funds. The new legislation imposes rent controls on owners of more than ten properties. The changes, which are expected to take effect in the second half of 2022, are a blow to companies like Blackstone, a private equity giant that is Spain’s largest owner.
Spain is just the latest country to offer restrictions to large real estate investors. Similar approaches have emerged in Ireland and New Zealand. In America, President Joe Biden wants to restrict the types of homes that large investors are allowed to own. Canada’s central bankers plan to analyze the role of investors in soaring prices. In a referendum in September, the people of Berlin took the drastic decision to vote for the expropriation of large landowners such as Vonovia and Deutsche Wohnen. (The result is not binding, and legal setbacks mean it might never come true.)
Tackling big investors might be popular with voters and easier to achieve than loosening supply constraints. But it is less clear that such an approach will lead to more affordable housing: restrictions on large landlords make it less profitable to build new properties. If the crackdown continues, investors could simply take their pots of capital elsewhere, leaving housing costs to rise even more. â
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This article appeared in the Finance and Economics section of the print edition under the title “Tinkering Task”