Working paper - part of a special issue at the Review of International Political Economy
Households consume an increasing share of credit in developed economies; however, past and current comparative capitalism research has had very little to say on housing markets. This is an important blind spot: house prices have crucial implications for national economies. Unsustainable housing prices can cause significant macroeconomic instability, drive wealth inequality, and accelerate households’ accumulation of debt. Moreover, housing markets across the developed world fail to conform to traditional comparative political economy “typologies.” While the liberal economies of the UK and Ireland experienced rapid housing price growth between 1995 and 2008, the “egalitarian” Nordic countries were close behind. We argue that the study of comparative capitalism needs to bring the household back in, through an analysis of the largest financial liability they own: mortgages. To understand heterogeneity in housing inflation, it is vital to understand dynamics in two markets that determine homeownership: First, the labor market, which shapes households’ incomes (on which comparative capitalism and comparative political economy more broadly have a lot to say), and; second, the market for mortgages, which shapes households’ access to financial resources (on which comparative capitalism and comparative political economy have very little to say). We argue that the impact of labor market institutions on housing inflation is conditional on national regulatory frameworks that govern mortgage credit access. Using a panel analysis of 17 OECD economies from 1990 to 2007, we find that in permissive mortgage credit regimes, countries with coordinated labour market institutions that restrain income growth have lower housing inflation than countries with uncoordinated wage-setting. This is what the comparative capitalism literature would predict. However, in restrictive mortgage credit regimes (those which undermine households’ capacity to assume mortgage debt), the structure of labour market institutions have no effect on housing inflation.