Policy, Not Credit, Drives Housing Cycles: 23-Country Study
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- The study analyzed housing markets in 23 OECD countries from 1990 to 2019, finding that during boom-and-bust periods house prices swung by almost 6% a year, far above the long-term trend of 2.6%.
- Dr. Ben Tippet of King's College London identified two key institutional drivers — low capital gains taxes and landlord-friendly rental regimes — and quantified the effect at roughly 1.85 additional percentage points of annual price volatility for each step-up toward speculation-friendly policy.
- The findings directly contradict the conventional view that mortgage credit availability is the primary cause of housing volatility: credit amplifies cycles but does not explain cross-country differences, the researchers found.
- Housing supply elasticity modestly dampens cycles, but its effect is smaller than that of speculation-friendly institutions, according to the paper published in the Socio-Economic Review.
- Co-author Professor Engelbert Stockhammer warned that busts trigger deleveraging that drags down demand and can cause prolonged stagnation, linking volatile housing to fragile finance-led growth models.
- Social housing, rent control, and strong tenancy protections were associated with more stable prices and fewer booms and busts, the study found — framing housing volatility as a policy choice rather than an inevitability.
Why it matters: For the 23 OECD countries studied, each step-up toward speculation-friendly policy adds 1.85 percentage points of annual price volatility — meaning tax and rental reforms offer a direct lever to reduce the household-debt damage and prolonged stagnation Stockhammer warns follows busts.
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