The Global Financial Crisis and Housing
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The Global Financial Crisis and Housing

A New Policy Paradigm

Edited by Susan Wachter, Man Cho and Moon Joong Tcha

This innovative book analyses the role played by real estate markets in global financial stability and examines the fragile link between the two. Through what transmission channels do housing market cycles influence broader economic systems? How has the Global Financial Crisis shifted our view and understanding of these linkages? This detailed book answers these questions in an international comparative perspective. Specific topics covered include macroeconomic transmission channels of the housing cycle, the role of housing in the finance system, construction financing as a cycle amplifier, and various related public policy issues such as the policy remedies needed to deal with housing and mortgage-driven crises.
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Chapter 12: Rental housing system and housing market volatility: monthly rent-based vs. asset-based systems

Kyung-Hwan Kim, Chang-Moo Lee and Young-Man Lee


The importance of a well-functioning private rental housing sector is appreciated more than ever in recent years. This reflects the increasing pressure on government budgets in many industrialized nations which makes it difficult to maintain a large public rental sector, and the recognition that pushing homeownership too far in the U.S. was a contributor to the subprime mortgage crisis. There is a growing interest in finding sustainable rental housing in the aftermath of the global financial crisis (Oxley et al. 2010, Scanlon and Kochan 2011 for U.K.; Quigley and Rafael 2004, Gramlich 2007, Glaeser and Gyourko 2008 for the U.S.). On the other hand, Sinai (2011) argues that volatility is not the same thing as risk and that both renting and owning entail multi-dimensional risks of their own. But he is also in favor of providing an even playing field for renting by either reducing subsidies to homeownership or improving support to rental housing. The choice between ownership and renting by individuals and the consequent homeownership rate are determined by economic variables as well as government policies and institutions which vary across countries. International comparative studies of tenure decisions reveal that there is no strong correlation between per capita income and homeownership rate, and that some government policies to encourage homeownership such as tax breaks and low-cost mortgage financing do matter (Proxenos 2002, Fisher and Jaffe 2003, Gwin and Ong 2004, Englund et al. 2005, Andrews and Sanchez 2011).

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