OECD: Governments have many options for making housing policy more efficient, inclusive and sustainable

June 22, 2023

Housing is a critical pillar of people’s lives, with direct influence on health and well-being, personal finances, professional opportunities and the environment. Well-designed and economically sound policies are needed to make housing markets more efficient, more inclusive and more sustainable in a changing world, according to the OECD.

In Brick by Brick: Better Housing Policies in the Post-COVID-19 Era, the OECD details the range of tools and policy options available to confront today’s housing challenges and improve future outcomes.

The report notes that the COVID-19 pandemic and its aftermath – notably the greater recourse to remote work facilitated by digitalisation – have reshaped work-life balance and led to important shifts in housing demand. It also shows how the sharp rise in fossil fuel prices following the onset of Russia’s war of aggression against Ukraine put additional pressure on household budgets and highlighted the importance of improving energy efficiency in housing.

Housing financing, which helps many people buy a home, also has implications for macroeconomic stability and resilience. As central banks tighten monetary policy to reduce inflation, mortgage interest rates have been on the rise, making housing more expensive, particularly for new buyers and those with variable-rate loans. House prices may have peaked, but the cost of housing remains elevated.

“We know the availability, affordability and proximity of housing to job opportunities, education, culture and amenities is critical,” OECD Secretary-General Mathias Cormann said. “There is much we can do to boost growth and well-being and in particular to improve affordable access to housing. Today’s report looks at the policy responses which could help enable well-functioning housing markets in the context of evolving housing needs and demand.”

The Brick-by-Brick report explores tools and insights for policymakers in three distinct housing-related priorities.

First, it emphasises that housing – which accounts for almost one-quarter of CO2 emissions worldwide – must play a greater role in achieving net zero greenhouse gas emissions by 2050. The report discusses how electrification, standard setting in building codes and improvements in the energy efficiency of homes and appliances can help. It also encourages policymakers to resolve so-called split incentives between landlords and tenants that hold back investment in energy retro-fitting in the rental market.

Policy packages proposed include a blend of smart regulations, appropriate pricing of energy use, well-structured subsidies and compensatory measures. Policy design needs to encourage acceptance of decarbonisation strategies by off-setting adverse economic impacts for the most vulnerable households.

Second, the report highlights the pivotal role of housing finance in enabling well-functioning housing markets. It suggests policies to make housing finance a reliable capital source for buyers, developers and other market participants without imperilling financial stability. The report explores avenues for using innovative tools to fund the large investments required to make homes more energy-efficient, including real estate-backed financial products and green mortgages.

Third, the report looks at changes in the spatial demand for housing and associated policy responses. The shift in preferences triggered by digitalisation and accelerated during the pandemic has put pressure on house prices in suburban and peri-urban areas, while containing prices in city centres.

Construction has often failed to respond to such demand shifts, because of rigidities in land use and zoning regulations, as well as slow and costly licensing processes. To avoid creating new sources of housing cost pressures, construction needs to be allowed to respond to new demand patterns.

Ensuring that housing supply follows the new demand patterns will be essential to contain rises in prices and rents in the areas where people want to live. New construction should be consistent with environmental objectives, particularly by favouring densification over urban sprawl. Reducing property transaction taxes would ease market adjustment while supporting residential mobility. Public investment in housing can help meet these objectives.

Source: OECD
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither Karen Audit nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.