## Walkways, Not Walls

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**Canonical URL:** [Walkways, Not Walls](https://www.imf.org/en/publications/fandd/issues/2024/12/walkways-not-walls-prakash-loungani)

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## Bibliographic details
- Authors: PRAKASH LOUNGANI
- Published: December 4, 2024

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### Macroeconomics and housing: the core argument
- Macroeconomics often neglects smaller micro developments at the business or sectoral level, especially the housing sector.
- Edward Leamer (2007) argued in “Housing IS the Business Cycle” that the housing market is central to understanding booms and busts; nearly all recessions in the United States since World War II were preceded by problems in the housing sector.
- The author’s thesis: macroeconomics would be better served by building walkways to housing economics rather than walling it off.

### Housing’s macroeconomic relevance and current developments
- Cities are highly productive engines of economic expansion, but accommodation in many cities is prohibitively expensive even for relatively high-paid professionals and essential workers who must work in person.
- Across the OECD’s mostly rich countries, house prices have risen by almost 40 percent in real terms over the past decade, with the cost of a home in the United States up by about 50 percent.
- Demand drivers: increases in population and income.
- Supply constraint driver: land-use regulations (such as preventing neighborhoods with single-use housing from allowing multifamily housing), which restrict how many housing units can be built on a particular plot of land.
- Political and social effects: risks exacerbating intergenerational inequality—60 percent of people aged 18–29 reported being somewhat or very concerned about securing adequate housing.
- Business effects: affordability is forcing firms to pay higher wages and budget for higher labor costs.
- Global inequality example: in Colombia, 82 percent of renters in the lowest income quintile hand over more than 40 percent of their income to private landlords.

### Housing, household debt, and financial stability
- Expensive homes and high rents can push people to take on too much debt.
- Household borrowing can boost short-term growth but imposes later costs: consumers cut spending to make repayments, the economy slows, and unemployment rises, as the IMF has shown.
- Example: in China, a housing downturn has had a significant impact on consumption.
- Systemic risk: a sudden economic shock—such as a collapse in home prices—can trigger a spiral of credit defaults that shakes the financial system.

### Housing and recent macroeconomic policy challenges
- Two central macroeconomic challenges faced in the recent period: understanding the sources and likely duration of the 2021–22 upsurge in inflation; and achieving a “soft landing” by slowing the economy to tame inflation without tipping it into recession.
- Housing complicated both issues: the role of house prices and rents in measures of the cost of living surprised many macroeconomists and affected consumer sentiment.
- Monetary policy calibration is difficult because the channels through which interest rates affect housing markets are complicated and shift over time; understanding them requires deep, country-specific knowledge of housing markets.

### Key factors affecting monetary policy transmission to housing
- Prevalence of fixed-rate mortgages can vary widely: from close to zero in South Africa to more than 95 percent in Mexico and the United States.
- Other relevant factors: extent of homeowner debt, extent of supply restrictions, and extent of house price appreciation and possible overvaluation.
- These channels’ strength changes over time: e.g., the share of fixed-rate mortgages has increased recently in many countries; availability of refinancing differs across economies and over time.

### Policy and priority observations
- Housing receives limited prominence in international policy frameworks compared with food: the 1948 Universal Declaration of Human Rights and other treaties recognize the right to adequate housing, yet housing gets barely a mention in the SDGs.
- The eradication of hunger is explicit in the UN’s Sustainable Development Goals (SDG 2 is to end hunger) and prompts international responses to food price shocks; shelter often receives far less coordinated attention despite pervasive affordability problems.
- Political salience: housing affordability has surfaced as a major issue in several national and local electoral races.

*F&D Magazine article “Walkways, Not Walls” by PRAKASH LOUNGANI, December 2024.*

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_Source: https://www.imf.org/en/publications/fandd/issues/2024/12/walkways-not-walls-prakash-loungani_