Choosing the right pin
House prices in Europe are losing touch with reality again. Deflating the bubbles will not be easy
THE Swedish word bo means to live; sambo to cohabit. As more people struggle to get on the housing ladder, a new word has been coined: mambo, to live with your mum. After Oslo, Stockholm is Europe's fastest growing capital—its population is expected to expand by 50% by 2030—yet cranes are scarce. The 30,000 new arrivals each year have increased competition for housing, and record-low interest rates have allowed Stockholmers to afford bigger mortgages. As a result, Swedish house prices have more than trebled since 1996 and household debt has reached 174% of after-tax income. There is talk, naturally, of a bubble.
It is not just Sweden: in June the IMF called on policymakers to do more to curb housing prices around the world, pointing out that valuations looked high in many countries. In May the European Central Bank singled out sky-high prices in Belgium, Finland and France; in July Moody's, a ratings agency, said that Britain showed signs of a new property bubble. The trend is all the more remarkable given that many of those economies have not fully recovered from the financial crisis and are growing feebly if at all.
After the collective pre-crisis boom, European housing markets took two paths. Denmark, Greece, Ireland, the Netherlands, Portugal and Spain dropped sharply; some continue to fall. Others including Belgium, Britain, Norway and Sweden only dipped before rebounding with worrying speed (see chart).
The ratio of house prices to rents is 65% above its historical average in Norway, 44% above it in Finland and 43% in Britain. Incomes are also failing to keep pace, with the price-to-income ratio 46% above its long-term average in Belgium and 27% in France. Things look even more outlandish in some cities. Apartment prices in Stockholm have risen 11% over the past year, after climbing 9% the year before; homes in London went up by 19%, thanks in part to foreign speculators.
Household debt is also hitting new records, as people take on bigger mortgages. In Norway, where the price of homes has risen fourfold since 1995, households now owe creditors two times their annual income after tax. Americans used to be far more indebted than Europeans. But Americans' debt is now below 105% of income after tax, whereas that of euro-zone households is almost 110%. “You cannot know you're in a bubble, but you can know that debt has moved too far,” says Urban Backstrom, a former governor of the Riksbank, Sweden's central bank. However, expectations that borrowing will stay cheap and not enough new homes will be built continue to push prices higher.
当人们不断承受着更大的抵押贷款时，家庭债务的数量也达到了一个新高。在挪威，房屋价格自1995年起已经增长了四倍，家庭欠债已经高达其税后年收入的两倍。美国人的负债曾远远高于欧洲人。但美国人现在的债务低于税后收入的105%，反之欧元区的家庭债务几乎是税后收入的110%。“你可能不知道自己身处在经济泡沫之中，但你可以感知到债台高筑，” Urban Backstrom——瑞典央行的前高管说道。无论如何，根据预期显示：贷款将会继续保持廉价并且足够的新房的建设将会把房价推向新高。
Central bankers cannot use interest rates to deflate the housing bubbles since, asset values aside, the economies of the countries concerned remain so sickly. Sweden's attempt to cool the market with an increase in rates in 2010 backfired: unemployment stopped falling and the country headed towards deflation, forcing the Riksbank start reducing rates again in 2011. If anything, monetary policy is likely to provide a further spur to house prices in the euro zone, since the ECB is toying with the idea of buying bonds in an effort to bring borrowing costs down yet further.
Macro prudential tools, to discipline both banks and borrowers, are a subtler set of instruments. Setting stricter limits on the amount people can borrow relative to the purchase price (the “loan-to-value” ratio, or LTV) or to their household income (loan-to-income ratio) helps to curb buyers' irrational exuberance; increasing the amount of capital that banks must hold against mortgages checks theirs.
The Netherlands has applied strict limits of this sort, with striking results. In 2011, with the euro crisis in full swing, the average new mortgage in the Netherlands was 112% of the property's value, putting Dutch household debt among the highest in Europe. The authorities hastily introduced a host of restrictions: LTV was capped at 106% in 2012 and is due to fall to 100% by 2018; capital requirements for banks were raised immediately. The government is also gradually reducing the tax break for interest payments on mortgages. These changes, along with the economic downturn, were enough to push prices down 20% in three years in real terms (after accounting for inflation, that is).
In contrast, neighbouring Belgium, where house prices had moved in tandem with Dutch ones until 2010, has taken a hands-off approach. As a result, while Dutch house prices have plunged, Belgian ones have increased by 11%. Belgium's market is now so overpriced that its buyers are credited with helping revive prices in the south-eastern part of the Netherlands by moving over the border.
To make matters more difficult for policymakers, Europe's property booms tend to be concentrated in capital cities, which are growing for the most part, even as other regions stagnate. Ireland provides an especially garish example. It is still full of ghostly developments of never-occupied houses. Yet in Dublin, which needs 8,000 new homes a year, fewer than 1,400 were built last year. That has helped to drive local house prices up by 23% over the past year, even as the property market in the rest of the country rose by a modest 5%.
In most growing European cities new construction is impeded by a thicket of planning restrictions, which could only be cut back with great political effort. The number of new homes completed in the European Union fell by a third between 2011 and 2013. Only three countries started building more homes last year than in the year before. In Paris the shortage of new homes is so acute that stories of illegal dwellings in cupboards and garages abound.
Some countries have come up with clever measures to whittle down their housing deficits. This month Britain's central government launched a website that maps all its land and buildings, from offices to prisons, and invites the public to suggest better uses for them under a new “right to contest”. It has promised to release for sale any property whose current use it cannot justify. Another quick fix is to make it easier to convert unused offices and shops into houses.
Perhaps the most striking innovation has been in Sweden, which in July began letting landowners build tiny rental cottages in their gardens, without any need for planning permission. These Attefallshus, can have a footprint of no more than 25 square metres and a height of no more than four metres. That is small, but it beats living with mum.