Globalization and The “Housing” Part of Real Estate: Some Comments.The Big Resource TensionIs the “American” Dream the World’s Dream?Are Our Homes Still Our Castles?Global Demand For Housing Finance IncreasingComparing Housing SettingsFactors Leading To PrivatizationGetting Prices Wrong Can Be PainfulBad Privatization Has Risk Liquidity/Buffering Institutions MatterIn Housing, Greater Public Prerogative May Be Needed …Globalization and Globalization and The The ““HousingHousing””Part of Real Estate:Part of Real Estate:Some Comments.Some Comments.Larry A. RosenthalLarry A. RosenthalUC BerkeleyUC BerkeleyMarch 2, 2007March 2, 2007The Big Resource TensionThe Big Resource TensionThe basis of any mortgage instrument combines the most mobile and the least mobile factors of production•Capital•Land (spatially fixed; heterogenous asset;use highly sensitive to local prerogative)Is the Is the ““AmericanAmerican””Dream the Dream the WorldWorld’’s Dream?s Dream?• Trace The (Housing Price)/(Family Income) Ratio• When Ratio Low, Redistribution Is Low, And The Burden On Households Is Low, Proportionally [Post-WWII US]• When Ratio Higher, Greater Need For Social Provision (urban working and non-working poor)Are Our Homes Still Our Castles?Are Our Homes Still Our Castles?• Increasingly Globalized Markets Can Mean Increasing Mobility of Labor• Homes Provide Stable Location And Wealthbuilding• High-Transaction-Cost Exchange Institutions Need Reform As Labor Mobility GrowsGlobal Demand ForGlobal Demand ForHousing Finance IncreasingHousing Finance Increasing•Population Growth•Densifying Urbanization•Demographics of Aging•Growth of Middle ClassGlobalization of Finance Means Increasing Globalization of Finance Means Increasing Privatization of Privatization of Govt.HousingGovt.HousingPrograms?Programs?Comparing Housing SettingsComparing Housing SettingsGerman public housing attracts foreign buyers By Mark LandlerThe New York TimesTHURSDAY, MAY 4, 2006Factors Leading To PrivatizationFactors Leading To Privatization• Governments Show Increasing Unwillingness To Finance Real Carrying Costs Of Aging Assets• Tenant Movements Angle For Self-Determination• Liquidity Of Capital Markets Mean Governments May Have OffersGetting Prices WrongGetting Prices WrongCan Be PainfulCan Be Painful• Residential Real EstateIs Infrequently Exchanged• Wealth Realization Is Perceptual• Overheated Asset Appreciation May Stress Finance Markets (Overreaching Upward)• Liquidating Collateral On Failed Loans Produces Recession (Overreaching Downward)Bad Privatization Has RiskBad Privatization Has Risk• Ladder Effects (Bardhan, Datta, Edelstein, Kim ’03): When Price Is Set Too Low, Bids On Private Assets Fall• Blamed For Hong Kong Recession In The Wake of the Asian Financial Crisis of Late 1990s (Ho & Wong, ’06)Liquidity/BufferingLiquidity/BufferingInstitutions MatterInstitutions Matter•GSEs•MBS•REITs(commercial residential side)• Tax Credit Syndication• “[M]arket liquidity is a social construction. Making legal and institutional projects successful is a political project”(Gotham, ’06)In Housing, Greater Public In Housing, Greater Public Prerogative May Be Needed Prerogative May Be Needed ……• To Match Land Liquidity With Capital Liquidity• Liberalize Local Regulatory Constraints Via National Programming• Federalize Urban Redevelopment
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