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O E C D : High Property Prices Hinder Exports

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I'll was thinking about changing my forum signature to : " High property prices increase the cost of everything. Everything."

But I thought I should do a little research before, just to confirm it, and I've found this - a new O.E.C.D. study that confirms that high property prices reduces a country's international competitiveness.

We knew that already, but it is very good that the OECD itself (the "official think-tank" of the developed countries) confirms it. It will give much more weight to the argument.

Edit to add: High property costs increase not only housing costs for workers, but also property costs for businesses, and for government. It increases capital costs across the whole economy, making everything more expensive, or, in other words, reducing the "value for money" of absolutely everything.

Organisation de Coopération et de Développement Économiques

Organisation for Economic Co-operation and Development 19-Apr-2010

___________________________________________________________________________________________

English - Or. English

ECONOMICS DEPARTMENT

EXPORTS AND PROPERTY PRICES IN FRANCE: ARE THEY CONNECTED?

ECONOMICS DEPARTMENT WORKING PAPERS No. 759

by Balázs Égert and Rafał Kierzenkowski

- - - - -

ABSTRACT/RESUME

Exports and property prices in France: are they connected?

France has seen a marked deterioration in its export performance in the last 10 years or so. Previous empirical

research pointed out that weak export performance was due to i) vigorous domestic demand; ii) lower mark-ups

due to head-to-head competition with Germany; iii) low non-price competitiveness of French export goods; iv)

offshoring of entire production processes (especially in the automobile sector); and v) difficulties of French

manufacturing firms to reach critical size for exporting. This paper adds an additional explanation to this list.

We argue that resource reallocation from the exporting to the construction sector triggered by fast rising

property prices hindered France to meet world export demand vis-à-vis its products. Our econometric analysis

shows that the resource reallocation argument helps explain French export performance between the early 2000s

and 2007, unexplained by traditional models. This result is confirmed for a set of OECD countries that

experienced a marked decline in their export performance and sustained real-estate boom after 2000.

JEL codes: F10; F14; O14; O52

Keywords:

- - - - -

Conclusion

This paper confirms the findings in the literature that a standard export equation estimated for

France, comprising indicators of export market growth and price competitiveness, does not have good

statistical properties and does not capture the pattern of export developments. Replacing the price

competitiveness variable by the cost competitiveness indicator improves the quality of the model and leads

to a reduction of the gap between observed and simulated exports. Subsequently, alongside indicators of

export market growth and cost competitiveness, the paper considers a relative price variable aimed at

capturing the resource movement of labour and capital between the manufacturing sector on the one hand,

and sectors of construction and real estate activities on the other hand. This is done by including the ratio

of house prices relative to producer prices in the manufacturing sector in a standard export equation. While

this ratio was relatively stable in France between 1978 and 1998, it rose sharply thereafter, under the

impact of rising house prices. The model integrating this indicator is robust and has a stronger explanatory

power of the evolution of French exports, in particular between 2004 and mid-2007. The robustness of this

finding is confirmed by similar results identified for a group of OECD countries that underwent a boom in

the real estate sector and a deterioration of export performance, with the latter being unexplained by

traditional export models.

Variations in real estate prices can affect the allocation of production factors, especially if capital

and labour are scarce and growth potential low. The main economic policy implication that follows from

this paper is to avoid creating distortions that could have counterproductive effects on price movements

(amplifying rises or impeding declines), thereby negatively impacting the export sector. The risk of such

effects can be induced by measures directly supporting the construction sector or by schemes aimed at

promoting home ownership as they could ultimately lead to or maintain an oversized real estate sector. The

ongoing downward adjustment of house prices should contribute to reduce the size of the latter and hence

to free up resources that could be used in export activities going forward.

LINK: http://www.olis.oecd.org/olis/2010doc.nsf/LinkTo/NT000029B6/$FILE/JT03282018.PDF

My next forum signature: " High property prices increase the cost of everything. Everything. "

.

Edited by Tired of Waiting

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High property prices wiped out California's industry as no one could afford to live and work there. It also destroyed Ireland's economy. Exporters had to relocate as their workers were all priced out.

Blindingly obvious IMO. It takes this long for them to work out the most basic of economic problems?'

HPI is a disease and deflation is the cure.

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High property prices wiped out California's industry as no one could afford to live and work there. It also destroyed Ireland's economy. Exporters had to relocate as their workers were all priced out.

Blindingly obvious IMO. It takes this long for them to work out the most basic of economic problems?'

HPI is a disease and deflation is the cure.

Neither The Daily Mail, nor The Daily Express seem to get this logic........or more likely it's screw the country so the VIs can extract the last dregs of bone marrow.

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High property prices wiped out California's industry as no one could afford to live and work there. It also destroyed Ireland's economy. Exporters had to relocate as their workers were all priced out.

Blindingly obvious IMO. It takes this long for them to work out the most basic of economic problems?'

HPI is a disease and deflation is the cure.

I know. I agree. They are depressingly slow.

And by "they" we are still talking about Academia. Our government will be much slower still to learn that, and then to implement it - if ever!

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Neither The Daily Mail, nor The Daily Express seem to get this logic........or more likely it's screw the country so the VIs can extract the last dregs of bone marrow.

Good point - remembering the right wing media. They tend to be nationalistic, but at the same time their readership is mostly property owning. They have this internal conflict of interest.

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I've been beating this drum for years to friends and family. Old and young - nieces and nephews with 200k + mortgages - old 'uns like me - they all kind of admit I'm right but every time there is a headline 'Property Prices rise 0.5% this month' - they all turn cartwheels.

Think how competitive we'd be if wages and house prices had stayed at 1997 levels.

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I've been beating this drum for years to friends and family. Old and young - nieces and nephews with 200k + mortgages - old 'uns like me - they all kind of admit I'm right but every time there is a headline 'Property Prices rise 0.5% this month' - they all turn cartwheels.

Think how competitive we'd be if wages and house prices had stayed at 1997 levels.

I know. Germany competitiveness is greatly helped by their low property costs.

It is obvious really. But somehow our political-economy is unable to implement policies to help lower property costs, because individual property owners (the majority) and voters (even bigger majority), are against their individual property going down in value.

BTW, "Games Theory" studies cases like that, or similar, of "market failure", where individual rationality does not take to collective rationality. In these cases, governments need to intervene. Unfortunately, for us, in this case, we have a similar problem in the political process... Oh dear...

.

Edited by Tired of Waiting

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a team of full time degree laden economists report the bleeding obvious.

making a profit is easy.

invoice more out than you are invoiced in.

as house prices reflect wage costs, the invoiced in part is higher the higher the house prices.

really really simple.

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I know. Germany competitiveness is greatly helped by their low property costs.

It is obvious really. But somehow our political-economy is unable to implement policies to help lower property costs, because individual property owners (the majority) and voters (even bigger majority), are against their individual property going down in value.

BTW, "Games Theory" studies cases like that, or similar, of "market failure", where individual rationality does not take to collective rationality. In this cases, governments need to intervene. Unfortunately, for us, in this case, we have a similar problem in the political process... Oh dear...

.

Not sure you could define Germany as a low wage economy! Germany seems to be predominantly helped by their banks lending to foreign nations, and those nations buying German imports. What could possibly go wrong with that?!

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a team of full time degree laden economists report the bleeding obvious.

making a profit is easy.

invoice more out than you are invoiced in.

as house prices reflect wage costs, the invoiced in part is higher the higher the house prices.

really really simple.

To be fair, the penny still hasn't dropped with the likes of Mervyn Kunt, then again maybe his position is solely of propping up shit governments that parachute (or keep him) in his highly paid position and bailing out his mates in the banking industry.

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To be fair, the penny still hasn't dropped with the likes of Mervyn Kunt, then again maybe his position is solely of propping up shit governments that parachute (or keep him) in his highly paid position and bailing out his mates in the banking industry.

I agree, Merkin is there to protect the financial system....not to cast judgement upon it.

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I know. Germany competitiveness is greatly helped by their low property costs.

It is obvious really. But somehow our political-economy is unable to implement policies to help lower property costs, because individual property owners (the majority) and voters (even bigger majority), are against their individual property going down in value.

BTW, "Games Theory" studies cases like that, or similar, of "market failure", where individual rationality does not take to collective rationality. In this cases, governments need to intervene. Unfortunately, for us, in this case, we have a similar problem in the political process... Oh dear...

.

Which is why, every now and then, I want to give in.

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Not sure you could define Germany as a low wage economy! Germany seems to be predominantly helped by their banks lending to foreign nations, and those nations buying German imports. What could possibly go wrong with that?!

Is Germany full of people working for the state on 200k plus? Full of other public sector middle tosser managers on 50k to 100k? Has it got a capital city where 3 bed suburban semis built and sold in the 1930s for £250 are now 400 grand? Where it seems that if you don't earn at least 60k you can't survive?

I don't know - but a guy who used to post on here - Dogbox by name - was always posting examples of German property he (allegedly) was buying. And they were always buttons compared to UK prices. So, if German wages are high, and house prices are low, the Germans must have a lot of disposable income to create demand in the economy.

Which, of course, is the main idea behind the proposition that 'high house prices poisin everything'.

They have also just poisoned a friend's marriage. While he has been working around the clock trying to start a new business - having been made redundant 2 years ago at the age of 50 - working around the clock in the hope of keeping his mortgaged 350k roof over his family's head - his wife has become so alienated by the stress and money worries she went off and had an affair. He's just been given the 'I want a divorce' message.

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Not sure you could define Germany as a low wage economy! Germany seems to be predominantly helped by their banks lending to foreign nations, and those nations buying German imports. What could possibly go wrong with that?!

I didn't say Germany is a low wage economy. They are not. German workers have a very good quality of life, most probably better than ours. It should be easy to find data about that on the web.

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Is Germany full of people working for the state on 200k plus? Full of other public sector middle tosser managers on 50k to 100k? Has it got a capital city where 3 bed suburban semis built and sold in the 1930s for £250 are now 400 grand? Where it seems that if you don't earn at least 60k you can't survive?

I don't know - but a guy who used to post on here - Dogbox by name - was always posting examples of German property he (allegedly) was buying. And they were always buttons compared to UK prices. So, if German wages are high, and house prices are low, the Germans must have a lot of disposable income to create demand in the economy.

Also means disposable income to start small specialised businesses - where the bulk of growth in business and new jobs is - ones that can survive me-too global competition. hence excellent trade balance, competitiveness and high standards of living.

It is not rocket science, only ignored by those who mainly have never done a productive days work in their whole lives.

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Also means disposable income to start small specialised businesses - where the bulk of growth in business and new jobs is - ones that can survive me-too global competition. hence excellent trade balance, competitiveness and high standards of living.

It is not rocket science, only ignored by those who mainly have never done a productive days work in their whole lives.

well, yeah...thats why we have low interest rates...to stimulate the economy.....not to outbid others with the biggest mortgage.

but, the sheep have been corralled...now only the government can save them.

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Neither The Daily Mail, nor The Daily Express seem to get this logic........or more likely it's screw the country so the VIs can extract the last dregs of bone marrow.

thats what ive argued ever since i join this site. Oh the newspapers didnt report this shame on them.

Edited by crash2006

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Not sure you could define Germany as a low wage economy! Germany seems to be predominantly helped by their banks lending to foreign nations, and those nations buying German imports. What could possibly go wrong with that?!

If you thought I meant that lower housing costs for German workers would allow companies there to pay low wages, this is not exactly true. I mean, they may be able to pay wages a bit lower than here, but as housing costs are much lower than here then the workers there are much better off. After all, as we all know, housing is the main cost of living.

But high property prices are not only bad for workers. High property costs increase also property costs for businesses, and for government. It increases capital costs across the whole economy, making everything more expensive, or, in other words, reducing the "value for money" of absolutely everything.

I am editing the OP to make this last point more clear.

I may add it to my new signature too:

" High property prices increase the cost of everything, for households, businesses and government. Everything. "

( Fine-tuning suggestions for the new sig are welcomed. We may even get to slogan good enough to campaign with it. )

Edited by Tired of Waiting

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They have also just poisoned a friend's marriage. While he has been working around the clock trying to start a new business* - having been made redundant 2 years ago at the age of 50 - working around the clock in the hope of keeping his mortgaged 350k* roof over his family's head - his wife has become so alienated by the stress and money worries she went off and had an affair*. He's just been given the 'I want a divorce'* message.

Sickening innit!

This one anecdote sums up so much what is so wrong with society today, I might just throw up my lunch :angry:

At risk of sounding politically incorrect (but at the same time honest and true):

Guys if you are the one who is earning and can't afford it, then don't buy it. Whether it is a house or a diamond. If she threatens to leave, let her.

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As housing forms a part of everybody's costs, the higher your housing costs the higher your wages. Nothing difficult there.

But the higher your wages, the less competitive you are on the export market. No brainer.

Monetary policy is the use setting central bank interest rates to control inflation. Again no revelations here.

Its a shame that the OECD even felt the need to publish a document explaining that higher property prices mean lower international competitveness, but some politicians we could name needed to be told this and it's a further reminder that the BoE target inflation rate should have included housing costs.

Edited by Dave Spart

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Exports are old hat, a concept as dated as 'jobs' or 'pensions'.

It's all about pwoperdee these days, pwoperdee. That's the engine room of our economy.

actually, its finance that's the engine of the economy and the item the PsTB target to maintain

whereas in reality, humans are the engine of the economy. FInance suffers no pain.

I know which one should be the priority.

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They have also just poisoned a friend's marriage. While he has been working around the clock trying to start a new business - having been made redundant 2 years ago at the age of 50 - working around the clock in the hope of keeping his mortgaged 350k roof over his family's head - his wife has become so alienated by the stress and money worries she went off and had an affair. He's just been given the 'I want a divorce' message.

This is an example of the moral damage that HPI has caused.

Let’s not forget that the high rents have created a sector of the country that can’t legitimately fund the roof over their head. They still have large screen TVs and cable plus foreign holidays by a cash in hand lifestyle so avoiding declaring the extra income and using the extra hours tax free.

HPI is immoral.

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As housing forms a part of everybody's costs, the higher your housing costs the higher your wages. Nothing difficult there.

But the higher your wages, the less competitive you are on the export market. No brainer.

Monetary policy is the use setting central bank interest rates to control inflation. Again no revelations here.

Its a shame that the OECD even felt the need to publish a document explaining that higher property prices mean lower international competitveness, but some politicians we could name needed to be told this and it's a further reminder that the BoE inflation rate should have included housing costs.

Yep, it is obvious. And yes, it is very weird that most people don't see it. I think the main cause is that all property owners like the fact that their property is worth a lot of money. They don't want to admit that this is just an unsustainable bubble.

And because of that, since property owners are the majority of the population, and an even greater majority of the voting population, unfortunately, our political-economy is unable to implement policies to help lower property costs.

BTW, like I wrote above to LGIR, "Games Theory" studies cases like that, or similar, of "market failure", where individual rationality does not take to collective rationality. In these cases, governments need to intervene. Unfortunately, for us, in this case, we have a similar problem in the political process... Oh dear...

Perhaps only international market forces will push UK property prices down - via currency devaluation?

______________

Newer draft signature :

" High property prices increase the cost of everything, for households, businesses and government, and the prices of everything, for everybody. "

( Fine-tuning suggestions for the new sig are welcomed. We may even get to slogan good enough to campaign with it. )

.

Edited by Tired of Waiting

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@Tired of Waiting:

I noticed your signature:

"High house prices poison everything." (By "Let's get it right", HPC, circa 2009)

It would be nice to think that the OECD has been taking notice of the blogosphere and even taken notice of the little nugget of wisdom you quote.

Edited by Dave Spart

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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