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Housing policies influenced recession in developed countries including USA

Posted by Elena del Valle on January 26, 2011

Click to enlarge

Graphic, photo: Organization for Economic Co-operation and Development (OECD)

As we look back at the housing market over the past few years and its impact on the economy it is still difficult to understand what exactly went wrong and what it may take to keep it from happening again. Seeing how other developed countries stand on the housing issue may give us some perspective and insights on how to move forward in the future.

According to Housing and the Economy: Policies for Renovation, a recently released chapter from the book Economic Policy Reforms 2011 Going for Growth from the Organization for Economic Co-operation and Development (OECD), which tracks changes in 29 developed countries including the United States, poor housing policies played an important role in triggering the recent economic and financial crisis.

The chapter looks at ways in which housing policies might be designed for better results. The Organization’s analysts believe “effectively supervised financial and mortgage market development combined with policies that enhance housing supply flexibility are key for macroeconomic stability.”

Here are some of the analysts conclusions and recommendations from the chapter: Appropriate housing policies, designed for efficiency and equitability, can help residential mobility, match workers with jobs and assist the job market recovery. Any changes in the mortgage markets should be accompanied by regulatory oversight and careful banking regulations; and housing supply responsiveness to demand has the potential for improvement in many of the markets examined as long as investment in residential real estate is dealt with to avoid volatility.

Angel Gurria, secretary-general, OECD

“OECD countries have seen the damage caused by badly designed policies through their effects on housing markets,” said Angel Gurria, secretary-general, OECD in a press release. “As we search for new sources of growth, as we seek to restore trust in our financial sectors, as we try to green our economies, policies related to housing can have a huge impact on our future”.

The United States is in good company when in comes to housing and economic problems. The OECD says that easy credit over the past two decades increased the volatility of prices resulting in housing price jumps of 90 percent or higher in Australia, Belgium, Finland, Ireland, Netherlands, New Zealand, Norway, Spain and the United Kingdom over the study period. Poor supervisory systems alongside deregulation and innovation in mortgage markets led in part to a “significant relaxation in lending standards, an increase in non-performing loans and the sub-prime crisis.”

The Organization recommends an increase in responsiveness of new housing supply to market demand, specifically the revisiting of licensing procedures that limit new housing projects and reconsidering land-use regulations that unduly prevent development. Its analysts believe a better supply may lead to less price volatility, fewer excessive price increases and encourage labor mobility.

It also supports the elimination of tax policies that favor housing over other types of investments. Such favoritism can lead to cheap lending fees which can lead to excessive investment, speculation and price volatility while at the same time limiting mobility. It encourages a system in which property taxes more accurately reflect the true market value of property.

Unemployment rate among U.S. youth alarming

Posted by Elena del Valle on December 9, 2009

Angel Gurría, secretary-general, OECD

Photo: Organization for Economic Co-operation and Development (OECD)

In spite of the recent talk of job related improvements, millions of Americans have suffered the ill effects of unemployment. Teenagers have been hit especially hard. For example, in November 2009, more than 25 percent of 16 to 19 year-old Americans were unemployed compared to ten percent for all workers. This is said to be the highest rate of teenage unemployment in the U.S. since World War II.

According to Jobs for Youth: United States, a 170-page report released this month by the Organization for Economic Co-operation and Development (OECD), in the year to November 2009, the youth unemployment rate in the United States rose by 8 percentage points to 19 percent representing an additional 1.6 million young people out of work.

“The short-term priority must be to help the young people most at risk to avoid the long-term scarring of a generation of young Americans,” said Angel Gurría, secretary-general, OECD in a news release. “Business must play its part in creating jobs but the government has to act quickly to extend financial support to more young people and increase funding for re-employment programmes. Longer-term, investing more in education to give young people the skills they need to succeed is essential.”

Unemployment in U.S. Youth 2008-2009 – click to enlarge

As recently as 2007, the youth employment rate was 53 percent. While not ideal, especially when compared with 60 percent in 2000; the youth unemployment rate, at 11 percent, was about 1 percentage point higher than its 2000 level. The report summary predicts African-American youth, youth with no qualifications and young women are particularly to face increasing challenges.

Jobs for Youth: United States is the latest in a series of OECD reports on youth employment policies that covers 14 countries. OECD provides a forum for member governments to compare policy experiences, “seek answers to common problems, identify good practice and coordinate domestic and international policies.”

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