There may be sound reasons for going short big cities and going long the suburbs right now, and there may even be sound reasons for overpaying a little for one’s dream home. But a lot of current bets seem driven by short-term pressure. And the trends driving this dash could easily reverse if the post-pandemic “normal” ends up looking a lot like more like the megacity-dominated past than we expect. In the meantime, the temptation to speculate is luring home-flippers from the U.S. to Australia.
Policymakers who might be tempted to let the sugar rush continue should be wary. What starts as a feel-good trend, based on the expectation everyone can get rich quick and egged on by breathless media coverage, can turn. Popular anger at unaffordable housing brings a clamor for blunt policies that don’t always work, such as rent controls. Building more housing won’t on its own fix the problem, but more should be done. One easy opportunity to add supply will come as companies reduce office space, reckons urbanism expert Laurent Chalard.
At the very least, regulators should keep an eye on generosity extended to borrowers. Mortgage credit standards are starting to loosen slightly, according to the Mortgage Bankers Association, even if they remain tighter than pre-pandemic norms. Research by Vincent Deluard, a strategist at financial firm StoneX, shows that if the big four U.S. banks were to return to their pre-Covid loan-to-deposit ratios of 80%, that would imply $2.1 trillion in new loans. If some of that flows into housing, that’s another source of market juice.
It may be that this mania loses steam before getting dangerous. But let’s keep an eye on those dungers just to be sure.
Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.