Housing is in crisis all around the world

Spanning much of the developed world, housing is in crisis.

Not the 2007-09 US mortgage meltdown type of crisis. And not the China-style "you didn't deliver the apartment I paid for" crisis. The crisis is one of a dire shortage of properties to live in at a time of historically high rates of immigration that have fuelled demand, from the US and Canada to Australia, New Zealand and others.

In some sense, today's shortages reflect under-building in some jurisdictions for years after the global financial crisis. What's also apparent is that not everybody is wild about a new wave of construction, even in cities that clearly have scope to increase their population density.

In Sydney, placards such as "Wrecking Ball Coming to You" were waved by residents and councillors this week protesting a proposal from the New South Wales state government to boost density by allowing six-story apartment blocks to be built around suburban train stations.

That will cause social problems, degrade the environment and the city's heritage, opponents argue. Yet a lack of apartments is problematic too.

Fuelled by rapid immigration growth and insufficient supply of dwellings, more and more people are being priced out of Sydney, where the average home now costs 13 times incomes and surging rents are adding to a cost of living crisis.

A similar dynamic can be seen on the other side of the planet, in Massachusetts, where Governor Maura Healey estimates a deficit of some 200,000 housing units, and has declared an emergency over rapidly rising numbers of migrant families.

State authorities are now battling the Boston suburb Milton over implementation of a law requiring zoning changes to allow multi-family housing units near metro stops. Milton voters last month voted against compliance.

Such not-in-my-backyard opposition can stymie new developments, especially when led by wealthy and well organised communities, leaving those on lower incomes on the property side-lines.

It's also leading to an inter-generational divide, with the young priced out of the market and the few who can afford to buy ending up with eye-watering mortgages, curtailing their ability to spend in the economy. That helps explain why Australia, Canada and New Zealand are in a per-capita recession, where the economy grows even as households go backwards.

For monetary policy makers, the housing woes present a Catch-22.

Higher interest rates have dampened dwelling investment — a desired monetary transmission outcome to take steam out of inflation — but that has exacerbated the housing affordability challenges, said former Reserve Bank of Australia official Luci Ellis.

Now, as the central bank mulls when to begin cutting rates, it'll need to balance the need for additional investment in residential construction with the need to prevent a reacceleration in inflation.

In the US, young people are shunning jobs as plumbers — an occupation that's physically demanding and sometimes dirty, though well-paid. The economic consequences could be far-reaching.

Harvard professor Kenneth Rogoff said both President Joe Biden and his predecessor and challenger Donald Trump risk sending US debt levels into dangerous territory.

Britain's housing market picked up in February, with an increase in both new buyer inquiries and properties for sale after prices stabilized.

Australian Treasurer Jim Chalmers expressed confidence he will be able to guide amendments to the Reserve Bank Act through parliament as he continues to engage with lawmakers opposed to the changes.

China's consumer prices may not be falling any more, but "lowflation" is here to stay, according to Morgan Stanley.

Policymakers are focusing on building out self-sufficiency and upgrading manufacturing, rather than stoking demand, Morgan Stanley China economists led by Robin Xing wrote in a note Wednesday. Beijing's thinking may be that increased industrial investment will promote job and income growth and filter down to consumption, they wrote.

Japan adopted a similar supply-side focused stimulus framework in the 1990s, the team pointed out. With limited support to non-tradable sectors of the economy, wages slowed, and deflation set in. For China today, the risks are tilted toward "prolonged deflation," they wrote.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.