How could housing policy reform increase economic efficiency and reduce volatility?
The large increases in real house prices in the late 1990s followed by the sharp slowdown continues the pattern of recent decades in which there have been large increases in house prices in relation to disposable incomes and high volatility in real house prices by international comparison, amplifying business cycles. The low price elasticity of housing supply has contributed to both large increases and high volatility in house prices. Housing supply has not been very responsive to demand owing to tough zoning rules, which have restricted the supply of residential building sites, to the growing quantity and complexity of building regulations and to the costliness of acquiring private building sites. The government should ease these constraints, as it is considering doing. High tax subsidies for owner-occupied housing, especially mortgage financed, and a change in banking policies in the 1990s that increased the amount that could be lent to the increasing number of two-income households,
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