1. Financing housing since the crisis: examples in Europe Christine M E Whitehead LSE and CCHPR, University of Cambridge DRAFT – NOT FOR QUOTATION “Housing finance in Europe in times of crisis” SIEPS Swedish Institute for European Policy Studies Stockholm 11 April 2013

2. Introduction: context of the research Based on ENHR Housing Finance working group survey together with published data Number 3 in a series of papers on mortgage and housing market developments before and after the financial crisis by Scanlon, Lunde and Whitehead (see final slide) Covers aspects of the consequences of the crisis Credit crunch has turned into a debt crisis and recession in many countries - with impacts back on to mortgage and housing markets

3. Research question, timing and methodology What has happened to housing and mortgage finance markets since 2009? How have governments and lenders responded? Data gathering mainly early 2011with updates 2012 and 2013

4. Housing market context Upswing in early 2000s: remarkable (but by no means total) synchronisation of markets in developed countries Peak not simultaneous: 2006 / 2007/ 2008 Downswing: initially similar in countries with significant debt, but then variability in trajectories

5. Three Groups? Group 1: continuing and sometimes very large declines in prices and activity – although a subset now stabilising Group 2: more limited decline; some recovery; and then often some reversal Group 3: continued (although usually much slower) growth Another group where relatively little debt finance (mostly Eastern Europe)

6. Trends in house prices: Initial fall in real house prices from peak and recent price changes Country% change in real house prices: peak in 2006/7/8 to 2009:4 (or trough if earlier) % change in real house prices: peak in 2006/7/8 to 2012:4 (or 2012:3 for some countries) Latest year: nominal house price change to 2012:4 (or 2012:3) Latest year: real house price change to 2012:4 (or 2012:3) Group 1: Nominal and real prices falling UK-15.9 %-17.2 % (2012:3) + 1.9 % (2012:3) -0.8 % Denmark-19.7 % -28.3 % (2012:3) -2.7 % (2012:3) -4.7 % Spain-11.3 %-34.2 % (2012:4) -10.5 % (2012:4) -12.0 % Ireland-24.7 %-48.1 % (2012:3) -6.1 % (2012:4) -7.4 % The Netherlands -4.4 %-21.4 %(2012:4) -6.9 % (2012:4) -9.7 %

7. Country% change in real house prices: peak in 2006/7/8 to 2009:4 (or trough if earlier) % change in real house prices: peak in 2006/7/8 to 2012:4 (or 2012:3 for some countries) Latest year: nominal house price change to 2012:4 (or 2012:3) Latest year: real house price change to 2012:4 (or 2012:3) Group 2: Peak in house prices in 2007, then price drop to a 2009 turnaround – and sometimes a new house price drop in 2011-12 US- 18.8 %- 25.8 % (2012:3) + 3.0 % (2012:3) + 1.5 % Finland- 8.8 %+ 0.1 % (2012:4) + 3.0 % (2012:4) + 1.5 % France- 9.6 % - 4.0 % (2012:3) -1.3 % (2012:3) -2.9 % Sweden- 6.3 %0.1 %(2012:4) 2.1 % (2012:3) 0.6 %

8. Country% change in real house prices: peak in 2006/7/8 to 2009:4 (or trough if earlier) % change in real house prices: peak in 2006/7/8 to 2012:4 (or 2012:3 for some countries) Latest year: nominal house price change to 2012:4 (or 2012:3) Latest year: real house price change to 2012:4 (or 2012:3) Group 3a: Real prices up Norway For 2007:3 to trough 2008:4: -11.6 % + 14.4 % (2012:3) + 6.6 % (2012:3) + 5.2 % Belgium For 2008:2 to trough 2009:2: -1.0 % + 3.4 % (2012:3) + 2.0 % (2012:3) - 0.5 % Canada For 2008:3 to trough 2009:2: -6.6 % + 10.1 % (2012:3) + 3.3 % (2012:3) + 2.4 % Group 3b: countries with recently relatively stable real house prices – and with actually increasing housing prices. Germany -2.4 % + 12.9 % (2012:3) + 10.2 % (2012:3) + 8.6 % Switzerland-2.1 % + 18.0 %(2012:3) + 3.4 % (2012:3) + 4.1 %

9. Figure 1: Real house prices 1970:1 – 2012:4 - 6 countries with falling prices since the 2006-07 peaks Source: OECD house price statistics of 28 th of January 2013.

10. Figure 2: Real house prices 1970:1 – 2012:4 – 4 countries: upturn, peak in 2007, some house price drop, a 2009 turn around – and a new house price drop in 2011-12 Source: OECD house price statistics of 28th of January 2013.

11. Figure 3: Real house prices 1970:1 – 2012:4 - 4 countries with actually increasing real house prices Source: OECD house price statistics of 28th of January 2013.

12. Figure 4: Real house prices 1970:1 – 2012:3 - 2 countries with recently relatively stable real house prices – and with actually slightly increasing real house prices. Source: OECD house price statistics of 28th of January 2013.

13. Figure 5: Indices of housing transactions, 2006 – 2010 (2006 = 100) Group 1: price falls

14. Figure 6: Indices of housing transactions, 2006 – 2010 (2006=100) Group 2: double dip

15. Figure 7: Indices of housing transactions, 2006 – 2010 (2006=100) Group 3: rising prices

16. Trends in Mortgage Markets Rapid declines in mortgage lending – supply or demand determined? Increases in arrears and foreclosures – more complex patterns than expected, partly because of government intervention based on past experience

20. Reasons for Differential Arrears Careful lending – eg France; Germany Variable interest rates/lower rates of unemployment than expected – UK; Denmark; Netherlands? Formal forbearance procedures – Ireland; UK Legal/cultural attitudes to foreclosure – at one extreme Spain – at the other France

22. Mortgage Products Credit assessments tightened Increasing limitations on range of mortgage products – demand? Institutional response? Increased regulation? Interest –only down being treated like annuity mortgages (UK) and special tax provisions (Netherlands) Limitations on maximum LTV - Sweden But evidence does not suggest that products themselves were are major source of arrears/foreclosures

25. Impact on Investment Much less variation in supply response across countries – impact of lack of confidence, Euro recession and unemployment as well as credit crunch Some countries still suffering constraints on availability of funds – for developers as well as purchasers Initial stimulus packages mainly replaced by public expenditure cutbacks Impact of shifting tenure structures

26. Change in residential building permits 2007-2011 CountriesPercentage (%) EU27-44 Spain-89 Ireland-86 Greece-75 Portugal-71 Hungary-68 Cyprus-60 Denmark-43 United Kingdom-42 Netherlands-35 Norway-33 Poland-28 Sweden-18 France-13 Germany-7 Switzerland36 Source: RICS Research – European Housing Review 2012

27. Outlook: prices and activity Have prices bottomed out? – some signs of stabilisation except in worst affected countries Equally there are concerns in countries where price increases are occurring notably Norway, Sweden and against past trends, Germany and Switzerland. Some countries with strong austerity packages beginning to use housing as a means of expansion – but as yet no significant impact – exception France? But low levels of activity in mortgage markets expected to be maintained as much because of lack of demand than funding constraints

28. Outlook: Mortgage Regulation Numbers of mortgage products have declined and generally become more traditional to the country Greater access constraints for first time buyers – but also lack of demand Changes in regulatory processes and potential impact of Basle III So far, long term regulatory change more rhetoric than reality in part because of low levels of activity – some evidence of reversal of strong constraints Macro-stability issues seen as increasingly important – both with respect to mortgage markets and funding for developers

29. Outlook: housing market adjustment Levels of development activity remains low in most countries Owner-occupation declining in some countries Capacities to transfer stock to private renting varies between countries Concern that real economic growth potential limited at least for some years

30. Conclusions Trajectories with respect to house prices have varied greatly since the financial crisis More commonality in mortgage market behaviour with lower levels of activity and some constraints on mortgage products-. Those that were more flexible have tightened controls – so now more in line with traditionally more regulated countries But little agreement with respect to mortgage products on what is risky Currently the real economy constraining activity as much as regulators – but if and when there is significant improvement what then?

31. Sources and Contacts This presentation is based on research by KJ Scanlon, J Lunde and CME Whitehead and the ENHR Housing Finance Working Group. It is a draft and not for quotation. Earlier papers are published in the International Journal of Housing Finance: Scanlon, K, Lunde, J and Whitehead, C (2008) ‘Mortgage product innovation in advanced economies: more choice, more risk’ International Journal of Housing Policy 8:2, 109-131 Scanlon, K, Lunde, J and Whitehead, C (2011) ‘Responding to the housing and financial crises: mortgage lending, mortgage products and government policies’ International Journal of Housing Policy 11:1, 23-49 Contact: c.m.e.whitehead@lse.ac.uk