The 1985-94 global real estate cycle : its casues and consequences

The peak of the first global real estate boom was reached around 1990 in most Organization for Economic Cooperation and Development (OECD) countries. Asset inflation was massive: in office markets across Europe, capital values rose 400 percent between 1980 and 1990, accelerating after 1986 - while average consumer price inflation went up only 150 percent. Property values have declined sharply since 1990, with most property markets losing at least 20 percent in nominal terms the first year of the crash's onset. Cumulative drops in capital value often reached 50 percent by the end of 1993. This pattern of a sustained buildup, usually peaking in 1990, followed by a sharp fall in nominal values, has been encountered in most OECD markets and in several NIE countries. Real estate booms and busts are recurring events, says the author, but real estate volatility on the scale and with the intensity just experience is costly and destructive. Real resources are misallocated, and the impact on the banking system, on households, and on the economy can be lasting. The author surveys the global real estate cycle of 1985-94, trying to identify domestic and international factors that triggered this new phenomenon of global real estate volatility. The authors intent: Assuming that the globalization of financial markets is irreversible, can we separate unique factors from recurring ones in this first global cycle? Can we map generic policy lessons and identify policy priorities and research agendas? Can we identify factors that accentuate real estate price and investment volatility? Four domestic factors lay behind the unusual volatility of this first global cycle, says the author: the liberalization and deregulation of capital markets, a distorted incentive structure that often stimulated the use of debt, new macroeconomic tools and occasional policy errors, and the structure of the real estate sector itself. The wide-ranging survey includes a proposal for research in certain areas, and offers some diagnosis. For example: If the global real estate crash has publicized one thing, it is the poor quality of information on real estate markets.Banks&Banking Reform,Payment Systems&Infrastructure,Financial Intermediation,Environmental Economics&Policies,International Terrorism&Counterterrorism,Financial Intermediation,Environmental Economics&Policies,Housing Finance,Economic Theory&Research,Banks&Banking Reform

Housing finance in transition economies : the early years in Eastern Europe and the former Soviet Union

The transition to markets dominates the development agenda of the 1990s. Financial sector reforms are central to a successful transition to a market economy. The author focuses on one dimension of these reforms: the development of housing finance institutions and services. He presents a progress report for the years since 1989, when the road to change opened with the collapse of communist regimes in most countries. Rather than a detailed account of reform in 25 countries, he offers a general framework for analyzing change and evaluating the prospects for rapid development of market-based housing finance systems. To understand why sound housing finance systems have not yet developed, one must consider factors in four key reform areas: the macroeconomic policies adopted to liberalize the economy and stabilize prices; privatization policies, in particular in housing and real estate; the strategies adopted - whether by design or by default - to reform the financial sector; the nature of the financial priorities and institutional constraints affecting housing finance reform strategies followed in different countries. Housing finance policy development has been somewhat haphazard in many countries. But the evidence suggests that the transition economiesthat have achieved low inflation, have adopted radical banking reforms, and seriously reformed and liberalized their real estate sector should be among the first to develop a modern system of housing finance.Non Bank Financial Institutions,Banks&Banking Reform,Payment Systems&Infrastructure,Housing Finance,Public Sector Economics&Finance,Banks&Banking Reform,Housing Finance,Public Sector Economics&Finance,Non Bank Financial Institutions,Municipal Financial Management

Compounding financial repression with rigid urban regulations : lessons of the Korea housing market

The objective of this paper is to explore the interactions between financial and urban policies, and their joint impact on the performance of the housing sector during the course of economic development. The central hypothesis is that extended periods of financial repression and the scarcity of mortgage lending have generated significant distortions in the output of the Korean housing sector. In addition, combined with very restrictive urban planning and land use regulations, this financial situation may have led to under-investment in the urban sector of Korea during much of the past two decades. A broader question which is left unaddresssed is whether such distortions and under-investment have been an integral component of the rapid growth policies of other East Asian market economies such as Japan and Taiwan, or what differences there might be. The analysis in the paper progresses from economic growth policies and directed credit to urban outcomes; the key link is the behavior of Korean households.Banks&Banking Reform,Environmental Economics&Policies,Housing Finance,Public Sector Economics&Finance,Economic Theory&Research

Cities without land markets : location and land use in the socialist city

The authors describe the structure of Russian cities after 70 years of Soviet development. This is the longest socialist experience on record and its results are of paramount interest to urban economists. In the absence of price signals and of economic incentives to recycle land over time, the administrative-command process has led to a startling pattern of land use. It's central feature is a perverse population density gradient, which rises as one moves away from the center of the city. (Driving from the center of Moscow, one passes through rings of Stalin-era, Krushchev-era, and then Brezhnev-era flats.) The Soviet city is also characterized by rusting factories in prime locations and high density residential areas in distant suburbs. Such a structure tends to maximize the economic and social inefficiency of the socialist city as well as its environmental ill effects. With market-oriented urban reform, real estate prices are now emerging. Their negative gradient signals again the massive scale of past land misallocation in the Soviet city. The experience of socialist cities is also a powerful warning about the ill effects of public ownership and the allocation of land to achieve the"socialization"of land rents.Environmental Economics&Policies,Municipal Financial Management,Banks&Banking Reform,National Urban Development Policies&Strategies,Urban Housing and Land Settlements,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management,Urban Housing and Land Settlements,National Urban Development Policies&Strategies

Contractual savings for housing : How suitable are they for transitional economies?

Problems of developing financial services for housing are acute in transitional socialist economies. The authors examine contractual savings for housing (CSH), which are often advocated as a primary solution, especially in Central and Eastern European countries. A CSH instrument links a phase of contractual savings remunerated at below-market rate to the promise of a housing loan at a rate also fixed below market at the time the contract is signed. This contract can contain a variety of options. CSH were used very successfully in Europe after World War II. The issue today is not whether such specialized instruments can work. They clearly can under low inflation. The issue is whether CSH systems are advisable today in latecomer countries with vastly different financial technology and financial policy environments. The authors focus on two influential CSH systems: the"closed"German Bausparsystem and the"open"French epargne-logement. In a"closed"CSH system, access to a housing loan is based on queuing: a loan can be made only if funds are available in the specialist institution. In an"open"system, the saver can legally call his or her loan at contract maturity, regardless of the liquidity conditions in the CSH system. From the perspective of households, CSH contracts facilitate the accumulation of equity and offer the prospect of a low-interest loan. They promote savings discipline and provide a concrete goal that many households find important. But CSH instruments leave the objective of providing a primary loan unmet. In additon, even moderate inflation quickly leads to very low loan-to-value ratios for CSH loans and a large financing gap for housing purchases. From the perspective of financial institutions, CSH can help overcome the severe information asymmetries they face in transitional socialist economies, where there are no retail financial markets, no credit bureaus, problematic income reporting. CSH are very effective in screening, monitoring, and establishing the reputation of steady savers as future borrowers, and they are good at lowering credit risks. With their saving periods of four to five years, CSH also help bridge the gap between long-term loans and short-term deposits. Finally, CSH can be an important commercial tool for developing cross-lending activities. But CSH can be risky. When the interest rate on outstanding contracts is low compared with current market rates, holders of mature contracts will want to call their loans. And new savers will be reluctant to sign on at very low contract rates. Eliminating this liquidity risk with a"closed"CSH system erodes the attractiveness of CSH. From the perspective of government, a CSH instrument can work in a noninflationary environment, yet a CSH system would have no justification in fully developed and competitive financial markets today. CSH instruments can play a useful but not a dominant role in housingfinance. After stabilization, they can overcome information constraints on financial contracts, and contribute to higher financial savings rates. CSH instruments are best used to finance home improvements. They can also be used as part of a social policy to reach targeted social groups.Financial Intermediation,Banks&Banking Reform,Payment Systems&Infrastructure,Public Sector Economics&Finance,Housing Finance,Public Sector Economics&Finance,Banks&Banking Reform,Housing Finance,Financial Intermediation,Non Bank Financial Institutions

Imaging Microglial/Macrophage Activation in Spinal Cords of Experimental Autoimmune Encephalomyelitis Rats by Positron Emission Tomography Using the Mitochondrial 18kDa Translocator Protein Radioligand [18F]DPA-714

Multiple sclerosis (MS) is an inflammatory demyelinating disease of the CNS. Activated microglia/macrophages play a key role in the immunopathogenesis of MS and its corresponding animal models, experimental autoimmune encephalomyelitis (EAE). Microglia activation begins at early stages of the disease and is associated with elevated expression of the 18 kDa mitochondrial translocator protein (TSPO). Thus, positron emission tomography (PET) imaging of microglial activation using TSPO-specific radioligands could be valuable for monitoring disease-associated neuroinflammatory processes. EAE was induced in rats using a fragment of myelin basic protein, yielding acute clinical disease that reflects extensive spinal cord inflammation. Enhanced TSPO expression in spinal cords of EAE rats versus those of controls was confirmed by Western blot and immunohistochemistry. Biodistribution studies in control and EAE rats were performed using the TSPO radioligand [18F]DPA-714 [N,N-diethyl-2-(2-(4-(2-fluoroethoxy)phenyl)-5,7-dimethylpyrazolo[1,5-a]pyrimidin-3-yl)acetamide]. At 1 h after injection, almost fivefold higher levels of [18F]DPA-714 were measured in spinal cords of EAE rats versus controls. The specific binding of [18F]DPA-714 to TSPO in spinal cords was confirmed in competition studies, using unlabeled (R,S)-PK11195 [(R,S)-N-methyl-N-(1-methylpropyl)-1-(2-chlorophenyl)isoquinoline-3-carboxamide)] or DPA-714 in excess. MicroPET studies affirm that this differential radioactivity uptake in spinal cords of EAE versus control rats could be detected and quantified. Using [18F]DPA-714, neuroinflammation in spinal cords of EAE-induced rats could be visualized by PET, offering a sensitive technique for monitoring neuroinflammatory lesions in the CNS and particularly in the spinal cord. In addition to current MRI protocols, this approach could provide molecular images of neuroinflammation for detection, monitoring, and research in MS