I will go on to look at why, post-pandemic, the market might be very different to the post-GFC period and some of the broader implications were house prices to resume their pre-GFC trend of rising significantly above earnings. Finally I will look, at what, if any, implications this might have for policy. 1  Countries included in this calculation are: Australia, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Israel, Italy, Japan, South Korea, Luxembourg, Netherlands, Norway, New Zealand, Sweden, United States. The authors acknowledge use of the dataset described in Mack, A., and E. Martínez-García. 2011. "A Cross-Country Quarterly Database of Real House Prices: A Methodological Note." Globalization and Monetary Policy Institute Working Paper No. 99, Federal Reserve Bank of Dallas. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  The post financial crisis period. In the 30 years following the liberalisation of the financial sector in the 1980s, outside recessionary periods, house prices in the UK grew consistently faster than earnings. There were two periods of particularly fast growth in house prices relative to incomes. The first was in the late 1980s, ahead of the early 1990s bust, and was driven by that liberalisation. The second was from the late 1990s up until the global financial crisis, and may have been linked to the Bank of England’s independence in 1997 and the consequent reduction in interest rates as inflation expectations and risk premia fell.
Spain had an oversized banking system, excessively concentrated on lending to the residential property sector and highly dependent on international wholesale financing. In 2008, the consolidated assets of the banking system amounted to 304% of GDP, bank lending to the property sector (in the broad sense of the term) reached 99% of GDP and bank debt held by non-residents accounted for 24% of GDP. Moreover a significant number of deposit-taking institutions suffered from institutional and governance shortcomings. Over the last decade many of these vulnerabilities have been resolved; in particular, those relating to the high level of non-financial private sector debt, which is now at levels similar to those in the rest of the euro area (having fallen by almost 70 percentage points of GDP from its peak in 2010). The weight of lending to property and construction activities has decreased by 47 percentage points of GDP. This reduction in non-financial private sector debt has been reflected in a decrease in the size of the financial sector and, in particular, in bank balance sheets in Spain, since business abroad has proved to be one of the main determinants of the resilience of some institutions. Thus, over the last ten years, the total assets of business in Spain have contracted by 20% (a fall of 72 percentage points of GDP) and employment in the sector has fallen by 32%.