The excessive imbalances procedure (EIP): how to undertake surveillance on housing markets?

Readers may be interested in this event later this week and the related materials.

5 replies on “The excessive imbalances procedure (EIP): how to undertake surveillance on housing markets?”


A great deal of pain could have been avoided in Ireland if restrictions had been placed on churning.

The Italian system applies an income tax rate to gains made on homes sold within five years of purchase. After that period, the sale is tax free (there may be some small local charges, I am open to correction). It has the advantage of simplicity and therefore it is understood generally. It doesn’t affect property ownership, but is for all practical purposes an sales tax.

Collusion and price-fixing in the housing market was a major cause of the Irish crisis.
Its unfortunate that no legislation has been introduced to prevent a housing bubble from starting again. Simple things like making a transparent house price record system. Introducing large stamp duties and limits on borrowing for buying 3rd and subsequent properties. Introducing anti-hoarding legisation against developers. Strenghtening the competition authority in this area. In China they are successfully cooling a bubble with similar legislation.
The fact that over half of the population own a property means that democracy for the majority is at work in Ireland. The thing about democracy is that it lets the majority take advantage of the minority. The majority took advantage of the minority in Ireland over the last 15 years and they are still doing it with NAMA and bailing out the banks to keep their house prices artificially inflated in the short term.
The IMF at least are insisting on a property tax.

The first paper on their reading list

is a complicated econometric mess build on a false premise.

It defines “booms” and “busts” in terms of deviations for a long-term price trend, then seeks to explain these “phenomena” in terms of a series of explanatory variables.

Of course, if the concepts of booms and busts are ill-defined, the correlations are spurious and no amount of fancy econometics will save you from reaching false conclusions.

I would argue it is meaningless to define booms and busts as long-term deviations from a price trend.

House prices should be treated as derivative values obtained from an underlying asset pricing model.

If you adopt this approach, most of the “explanatory variables” the authors mention appear as tautologically as part of the pricing model: Lower interest rates change the NPV, higher economic growth changes the return on the asset, etc., etc.

Why am I saying all this?

Because a great deal of trouble is spent trying to price housing assets at some arbitrary level (reference to past values is an arbitrary level, meaningless in an asset-price context).

If this is the literature the Commission is reading (and the ECB is writing!) we are doomed to continue to live in speculative bubbles.

Somebody please read Hayek…

Personal and corparate credit limits might help.

One of the problems in the boom was that the aggregate debt figure was ‘fundamentally’ low – as a nation, we were ‘underborrowed’. This is not difficult when 40% of households have no significant debt, but it doesn’t mean that any part of the other 60% should be permitted to ‘make up’ for that low aggregate debt.

There is surely an individual debt limit beyond which it is not sensible to permit people to move?

@LHE: “Somebody please read Hayek…”

And, …………………………….., insert any and all you fancy. Won’t make a blind bit of difference.

Only nerds (me and some others apparently) actually read the stuff. I was appalled at the relative ‘ignorance’ I encountered in some upper echelons. Mind you, they knew about every golf course (both home and away). The level of disdain, dismissivness and contempt was truely frightening. And look where it got them – and us!


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