New studies about the housing market

CEPI has long campaigned for better information about the housing market. Given its importance to the economy of different countries and Europe as a whole it is sometimes surprising how difficult it still is to find accurate information about the housing market. Therefore we are pleased to welcome the publication of two recent studies which both serve as a useful point of reference. The first is the European Commission's annual social situation report which concentrates on housing and the possible effects of the recession. It shows that Europeans are now paying more by way of housing costs although many are living in substandard accommodation. The second is published by the European Central Bank on "Housing, consumption and monetary policy: how different are the US and the euro area". CEPI encourages more investigation of this sort but asks for a more integrated approach focused at a European level.
The housing market is not a matter of EU competence but the EU is acting in more and more areas which impact upon it. It is essential that the housing market itself is better understood. Information available in different countries varies whilst it is very difficult to find information about the European housing market as a whole and its importance to the European economy. For this reason CEPI is pleased to see the publication of reports which serve to raise the level of knowledge.

In February 2010 the European Commission published its annual report on "The Social Situation in the European Union 2009". This report contains a chapter on housing with contents including the structure of housing in the EU, housing costs, housing and the economic crisis, housing as a component of wealth, changes in house prices and the effect of the recession on housing. Not surprisingly it confirms the crucial role played by the housing sector in the present economic crisis. The bursting of the housing bubbles which existed in some countries exposed problems in the financial sector and caused significant job losses in the construction sector.

Another report published in February 2010 by the European Central Bank takes a different approach looking at "Housing, Consumption and Monetary Policy How Different Are the US and the Euro Area?" This report analyses the role of the housing market in the macro economy in the US and in the euro area, finding similarities in this regard. Interesting questions include the role of monetary policy in affecting the behaviour of residential investment and house prices, the role of the mortgage market in changes in house prices, and the impact of housing market corrections on financial stability in general. The report focuses on monetary policy shock, credit supply shock and housing demand shock. The three main conclusions are that there are a lot of similarities between the US and the euro area as regards key housing market and macroeconomic variables, there is more evidence of a role for the housing market in the transmission of monetary policy in the US than in the euro area, and that mortgage credit supply shocks lead to a fall in real house prices and residential investment in both the US and the euro area but appear to be quantitatively more important in the euro area.

For both those who work in the market and those who seek to understand it this form of analysis is useful. CEPI would like to see more research further targeted at establishing the real importance of the property market to the European economy.