29 June 2012

Safe as Houses?

A Historical Analysis of Property Prices

Neil Monnery
2011, London Publishing Partnership, 220 pages, £12.99
ISBN 9781907994012

Reviewer: Ian Harwood, Global Economist, Redburn

The behaviour of residential property prices is a subject of widespread and enduring interest. As we all know, the purchase of a home in which to live is generally the costliest buying decision most people are likely to make during their lifetime. In addition, recent experience in many parts of the world - whether in the US, Ireland, Spain or, more recently, China - is that home prices don’t go up forever but can also fall, and often very severely.

There is nothing novel about this latter development, of course. Rather, the force of gravity has always tended eventually to get the upper hand when home prices become seriously misaligned with underlying fundamentals such as household disposable income. Unfortunately, though, one of the distinguishing marks of developing property price ‘bubbles’ has always tended to be an overweening belief on the part of the majority of the population that home values can only keep appreciating (other distinctive aspects are a cheap and abundant supply of liquidity and increasingly-stretched valuation metrics). Unfortunately, too, such an expectation has usually been encouraged by relentlessly upbeat commentaries on the part of a host of supposedly expert commentators arguing that ‘this time it’s different,’ despite all evidence to the contrary.

What this means, though, is that any book taking as its subject matter the past behaviour of home prices around the world is likely to be of interest to many people. And the current book, when sitting on the shelves, certainly looks as if it hits the spot in this regard, its sub-title being “A Historical Analysis of Property Prices”. Crucially, moreover, the general reader, on purchasing this book, is unlikely to be disappointed by the contents. Indeed, the book lives up to this billing, offering a panoramic survey of house-price history. And though the author’s major interest is clearly the past behaviour of home prices in his own country, the UK, the majority of the book’s near-200 pages focus upon developments elsewhere, whether in the US, Australia, Europe or Japan.

It must be said, though, that this apparently ‘global’ coverage has some glaring gaps. Anybody, for instance, aspiring to learn anything about Asian property markets - including that of China- will be sorely disappointed. It is also surprising that useful sources of information on house-price developments around the world - notably The Economist magazine’s handy quarterly global house-price indicators survey, which has been up and running since 2002 - receive no mention.

It must be said, though, that this is a highly readable book. The narrative flows well. And anybody seeking to discover what has happened to home prices in many major economies over the course of the past few centuries will not be disappointed.

But while the general reader is likely to be satisfied by what this book has to offer, the practising economist, I suspect, will be markedly less so. Indeed, to anybody seriously au fait with the subject matter under consideration, much of the analysis of why home prices have behaved as they have done will seem sketchy and sadly inadequate. In addition, the book is not anything as data-intensive as a practising economist would like (anybody looking for follow-up source material, therefore, will be frustrated). And there is no analysis - except of the most superficial nature - as to how the rise and fall of home values has impacted upon real economic activity.

Given that we are still living amid the detritus of home-price bubbles gone wrong on both sides of the Atlantic - and are, at present, all fretting about whether the property market of the world’s second largest economy and most powerful contributor to global growth in recent years will see a hard or, alternatively, soft landing in 2012 - this deficiency will wholly disappoint any practising economist hoping for an overview of the most recent research and debate.

To be fair, this was not the author’s aim. Rather, his focus is upon past home-price movements, pure and simple. And, in this regard, his book is a welcome, pleasurable and informative read.