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Abstract
<p class="first" id="d7671586e76"> 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.
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