International Housing Bubble: Missing the Point


The views of Talbot, as you characterize them (I have not read the book) are both “right on” and “way off.” Anyone who took his advice to sell at the peak of the bubble owes him a good deal. On the other hand, you indicate his view that “the hyper inflated run up in home prices…” occurred in “ virtually every major metro housing market” over the last 10 years. That is simply not true, as our 6th Annual Demographia International Housing Survey indicates. Indeed, in the three fastest growing metropolitan areas in the high income world, Atlanta, Dallas-Fort Worth and Houston, there were only modest price increases relative to incomes or inflation. (See:

Approximately one-half of the major US markets experienced little in house price increases. Each of these has far less restrictive housing regulation than where the prices escalated to unprecedented heights. In all of these markets, land use regulation is overly prescriptive. This is not to suggest that the fundamental cause of the bubble was not easy money and profligate lending. However, in that environment, the bubble occurred only where land use regulation was overly prescriptive. Had more traditional regulation been in place in all of the nation’s housing markets, it is likely that the bubble would have been avoided, because we would have built our way out of it, as we did in one-half of the country.

As for the pervasiveness of the bubble outside the United States, the data shows the same relationship. Overly restrictive land use regulation exists in all bubble markets of not only the US, but also the UK, Canada, Australia, Ireland and New Zealand. In some cases this is the result of national land use policies (such as in the UK) and in some the result of nearly duplicate regional policies (such as in Australia).

It is all a matter of simple economics. Where the supply of any good or service is constrained such that demand exceeds supply, prices will tend to go up, all things being equal. This view is shared by leading economists as well as members and former members of central bank boards. See:


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