The X axis is a measure of property rights by country: property rights are weakest in Vietnam and strongest in Singapore and Hong Kong. Note the correlation. Even though the property rights index is only ordinal, it has a correlation of .78 with the price per square meter of a 120 square meter flat in the national and or financial capital of each country.
On the one hand, one would expect freer property rights to encourage productivity, and therefore produce higher incomes which would leads to higher prices. On the other hand, stronger property rights should also make housing supply more elastic, and therefore reduce property values.
India is (as is often the case) the outlier here: property rights are not strong, but prices are very high. Indeed, the price of a flat in Mumbai, where per capita PPP income is at about 1/6 the US's, is comparable to Manhattan, and much more expensive than Los Angeles. But Indian policy has fettered housing construction over the years, and Mumbai is the financial and cultural capital of India, so its very high prices (especially in context) should not be surprising.
Hong Kong seems to have an issue similar to that the coastal areas in Mexico have -- the illusion of property rights. HK reverts back to China completely in 50 years, so in a way people have excellent property rights until they don't. In Mexico, they have the fideicomiso, but if you have enough money to buy a judge you can cloud the title easily and help yourself to huge chunks of land. (Sorry, thinking out loud). Nothing is written in stone, but I guess we need to look at the long term stability of a geographic area to properly evaluate the strength of property rights. Who's to say the United States won't nationalize housing in 5 years.
ReplyDeleteAll the data points in the graph are from one region. You could get the same correlation by indexing to reverse population size.
ReplyDeleteUncle Billy is suggesting linking to a corrupting index. There are many out there. Then dealing with this issue becomes the real subject. I'd be interesting to do a more controlled survey intra-nationally or even city by city.
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