Private Landed Property and Finance: A Checkered History

This article examines the links between private property in land and the financial system. Private landed property (PLP) has played an important role in supporting the growth of modern banking and credit systems, industrialization, and economic democratization. However, since the 1980s, high-income economies have exhibited a strong preference for PLP as a form of tenure, in the form of home ownership in particular. This pattern has combined with financial liberalization and innovation to create a land-finance feedback cycle with negative social and economic outcomes. They include a housing affordability crisis for younger and poorer socioeconomic groups; rising wealth inequality as land rents have become more concentrated; economic stagnation due to capital misallocation; and increased financial fragility as household debt has exploded. We illustrate these historical processes in the Anglo-Saxon “home-owning democracies,” where they have been strongest, focusing in particular on the United Kingdom, Australia, and the United States. This article considers how alternative tenure arrangements and reforms to finance and taxation could help mediate these dynamics

Keeping wealth local

How we can use Urban Wealth Funds to unlock spending and drive local economic development and housing affordability

Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935-75

Historically high levels of private and public debt coupled with already very low short-term interest rates appear to limit the options for stimulative monetary policy in many advanced economies today. One option that has not yet been considered is monetary financing by central banks to boost demand and/or relieve debt burdens. We find little empirical evidence to support the standard objection to such policies: that they will lead to uncontrollable inflation. Theoretical models of inflationary monetary financing rest upon inaccurate conceptions of the modern endogenous money creation process. This paper presents a counter-example in the activities of the Bank of Canada during the period 1935-75, when, working with the government, it engaged in significant direct or indirect monetary financing to support fiscal expansion, economic growth, and industrialization. An institutional case study of the period, complemented by a general-to-specific econometric analysis, finds no support for a relationship between monetary financing and inflation. The findings lend support to recent calls for explicit monetary financing to boost highly indebted economies and a more general rethink of the dominant New Macroeconomic Consensus policy framework that prohibits monetary financing

Breaking the taboo: a history of monetary financing in Canada, 1930-1975.

Monetary financing - the funding of state expenditure via the creation of new money rather than through taxation or borrowing - has become a taboo policy instrument in advanced economies. It is generally associated with dangerously high inflation and/or war. Relatedly, a key institutional feature of modern independent central banks is that they are not obligated to support government expenditure via money creation. Since the financial crisis of 2007-2008, however, unorthodox monetary policies, in particular quantitative easing, coupled with stagnant growth and high levels of public and private debt have led to questions over the monetary financing taboo. Debates on the topic have so far been mainly theoretical with little attention to the social and political dynamics of historical instances of monetary financing. This paper analyses one of the most significant twentieth-century cases: Canada from the period after the Great Depression up until the monetarist revolution of the 1970s. The period was a successful one for the Canadian economy, with high growth and employment and manageable inflation. It offers some interesting insights into the relationship between states and central banks and present-day discussions around the governance of money creation

When homes earn more than jobs: the rentierization of the Australian housing market

This article develops the concept of housing market ‘rentierization’ to describe the shift in the treatment of housing away from its use as a consumption good to an asset from which economic rent can be extracted. Rentierization encompasses, but goes beyond, the ‘financialisation of housing’ that has been the focus of attention in the recent political economy of housing literature as it involves changes across land and housing market policy, fiscal-policy as well as financial policy spheres. We examine Australia as a canonical example of rentierization, conducting a historical case study that examines the returns to land and housing over the 20th century and trace its roots to developments that preceded the financial liberalization of the 1980s, including the privatization of public housing in the 1960s and 70s

Managing nature-related financial risks: A precautionary policy approach for central banks and financial supervisors

This paper considers how financial authorities should react to environmental threats beyond climate change. These include biodiversity loss, water scarcity, ocean acidification, chemical pollution and — as starkly illustrated by the Covid-19 pandemic — zoonotic disease transmission, among others. We first provide an overview of these nature-related financial risks (NRFR) and then show how the financial sector is both exposed to them and contributes to their development via its lending, and via the propagation and amplification of financial shocks. We argue that NRFR — being systemic, endogenous and subject to ‘radical uncertainty’ — cannot be sufficiently managed through ‘marketfixing’ approaches based on information disclosure and quantitative risk estimates. Instead, we propose that financial authorities utilise a ‘precautionary policy approach’, making greater use of qualitative methods of managing risk, to support a controlled regime shift towards more sustainable capital allocation. A starting point would be the identification and exclusion of clearly unsustainable activities (e.g. deforestation), the financing of which should be discouraged via micro- and macro-prudential policy tools. Monetary policy tools, such as asset purchase programmes and collateral operations, as well as central banks’ own funds, should exclude assets linked to such activities

Rethinking the Economics of Land and Housing

Why are house prices in many advanced economies rising faster than incomes? Why isn't land and location taught or seen as important in modern economics? What is the relationship between the financial system and land? In this accessible but provocative guide to the economics of land and housing, the authors reveal how many of the key challenges facing modern economies - including housing crises, financial instability and growing inequalities - are intimately tied to the land economy. Looking at the ways in which discussions of land have been routinely excluded from both housing policy and economic theory, the authors show that in order to tackle these increasingly pressing issues a major rethink by both politicians and economists is required

Challenge-Driven Innovation Policy: Towards a New Policy Toolkit

Policy makers are increasingly embracing the idea of using industrial and innovation policy to tackle the ‘grand challenges’ facing modern societies. This article argues that through well-defined goals, or more specifically ‘missions’, that are focused on solving important societal challenges, policymakers have the opportunity to determine the direction of growth by making strategic investments across many different sectors and nurturing new industrial landscapes, which the private sector can develop further, and as a result induce cross-sectoral learning and increase macroeconomic stability. This ‘mission-oriented’ approach to industrial policy is not about ‘top down’ planning by an overbearing state; it is about providing a direction for growth and increasing business expectations about future growth areas and catalysing activity that otherwise would not happen. It is not about de-risking and levelling the playing field, nor about supporting more competitive sectors over less since the market does not always ‘know best’ but tilting the playing field in the direction of the desired societal goals, such as the sustainable development goals. To achieve this requires a different policy framework, what we call the ‘ROAR’ framework, which involves strategic thinking about the desired direction of travel (Routes), the structure and capacity of public sector Organisations, the way in which policy is Assessed and the incentive structure for both private and public sectors (Risks and Rewards). The article argues that if we want to take grand challenges such as the SDGs seriously as policy goals, market shaping should become the overarching approach followed in various policy fields

Finance, climate-change and radical uncertainty: Towards a precautionary approach to financial policy

Climate-related financial risks (CRFR) are now recognised by central banks and supervisors as material to their financial stability mandates. But while CRFR are considered to have some unique characteristics, the emerging policy framework for dealing with them has largely focused on market-based solutions that seek to reduce perceived information gaps that prevent the accurate pricing of CRFR. These include disclosure, transparency, scenario analysis and stress testing. We argue this approach will be limited in impact because CRFR are characterised by radical uncertainty and hence ‘efficient’ price discovery is not possible. In addition, this approach tends to bias financial policy towards concern around avoiding short-term market disruption at the expense of longer-term, potentially catastrophic and irreversible climate risks. Instead, an alternative ‘precautionary’ financial policy approach is proposed that offers an intellectual framework for legitimizing more ambitious financial policy interventions in the present to better deal with these long-term risks. This framework draws on two existing concepts — the ‘precautionary principle’ and modern macroprudential policy — and justifies the full integration of CRFR into financial policy, including prudential, macroprudential and monetary policy frameworks

Breaking the housing–finance cycle: Macroeconomic policy reforms for more affordable homes

This paper argues that the housing affordability and wealth inequality crises facing advanced economies are driven by the emergence of a feedback cycle between finance and landed property. The cycle has been created by the increasing policy preference for private home ownership coupled with the liberalization of bank credit and accompanying financial innovation. Under such conditions, landed property becomes both the most attractive form of collateral for the banking system and the most desirable form of financial asset for households and investors. The housing–finance cycle emerged in Anglo-Saxon economies in the 1980s but has since spread to most advanced economies. Demand-side reforms, more than the supply-side reforms that dominate policy discussion, are required to break this cycle. Two reforms are discussed: (a) structural and institutional reforms to banking systems, including central banks; and (b) land policy reforms targeted at reducing the potential for rent extraction and speculative profits from property ownership