Showing papers in "Journal of Real Estate Literature in 2013"

The Price of Inequality: How Today's Divided Society Endangers Our Future

Abstract: The Price of Inequality: How Today's Divided Society Endangers Our Future. Joseph E. Stiglitz, 414 pages, New York: W. W. Norton & Company, 2012.I LOVE THESE GUYS''(Joseph Stiglitz) is an insanely great economist,'' so writes Paul R. Krugman, who should know. These two like to write books for the populace at large on the topic of macroeconomics. Krugman also likes to spout offon Sunday news shows like ''Meet the Press,'' and on all the cable news programs. You can see Krugman arguing with Bill O'Reilly on Meet the Press. From YouTube: ''Don't call me a liar, pal, that's what you do all the time,'' says O'Reilly; ''This is not your show, so you can't cut offmy mic,'' says Krugman. Judging by their expressions, I was glad Tim Russert (6- 3-) was there in the studio at the time to protect Krugman (5- 7-) (O'Reilly stands 6- 4-). Conservative pundits dislike both economists, but pretty much leave Stiglitz alone.Krugman makes it a point to stay out of government affairs. Stiglitz does just the opposite, and he sometimes gets burned. Stiglitz was part of Bill Clinton's Council of Economic Advisers and was Chief Economist for the World Bank. After much criticism of the way the International Monetary Fund (IMF) conducted lending to developing countries, he was pretty much fired from the World Bank. Comparing the two, you would have to say that Stiglitz is more the bleeding heart, while Krugman says that what he dislikes most is the dishonesty he sees in political-economic discourse. Both are champions of the common man.Since Stiglitz can make the very valid claim for being ''an insanely great economist,'' most everything he says in his books should be taken seriously. There are some real gems in this book. I especially like the perspective he lends to some of the more peculiar things that happened before, during, and after the financial crisis. People hear about these things in the news from some announcer who makes them sound like just more news-bites, but they are, after all, unprecedented (and largely absurd). Take ''robo-signing'' for instance (page 198).WHAT GOES FOR NEWSRobo-signing was part of what happened during the foreclosure process after the massive numbers of defaults of subprime mortgages. Big banks intentionally did not follow mandated law. Apart from ignoring debtors' rights, an ensuing mess followed. Robo-signing was nothing less than a blatant attempt at rewriting property law, and resulted in lying to the courts about the state of each property's title, literally hundreds of times. No bank officer was charged with a crime. By contrast, the savings and loan crisis of the 1980s led to 829 individual convictions and 650 prison sentences. Nowadays the big banks just pay fines as part of settlements where they admit no guilt, and it's just part of doing business.Take algorithmic or ''flash'' trading in the stock exchanges (page 164). These are buys and sales made in nanoseconds on the basis of extracting information from the patterns of prices and trades. Nothing like real information gathered through market research on an industry, or on a firm in a certain industry, backs up these trades. But traders swear that ''price discovery'' is happening this way, and that all this backs up the efficient markets model. So on May 6, 2010 stock prices plummeted to a point where the Dow Jones temporarily lost 10% of its value. There are reasons to believe that these trades ''make markets not just more volatile but also less 'informative' '' (page 166). Still, the talk on the street is all about efficient markets (echoing Alan Greenspan's failures at the Federal Reserve).Take failed privatizations. When electric power in California was liberalized and Enron manipulated prices and public power to its advantage, this was a story about the company's accounting practices, not about privatizing something that had no business being privatized. …

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

Abstract: After the Music Stopped: The Financial Crisis, The Response, and the Work Ahead. Alan S. Blinder, 443 pages, New York: The Penguin Press, 2013.Reviewed by: Charles C. CarterThe word is out. Now we can sit back and look at what happened to the world's economies. Blinder's book covers all the important events and consequences of the recent financial crisis. There's really nothing in his book I disagree with, which says a lot, having taught macroeconomics for years and read most of the financial crisis books. This is a fairly long book and is targeted to the general public. (He uses callout boxes in which he explains terms like 'moral hazard' and 'bid-ask spreads.') Helpful graphs, tables, and references abound.Since 2008 several easily readable, good books have been written on the causes of the financial crisis (Muolo and Padilla, 2008; Shiller, 2008; Baker, 2009; Krugman, 2009; Tett, 2009; Stiglitz, 2010). [Actually there were good and easily readable books before the financial crisis that warned us of what to expect; for example, Shiller (2000).] Then there were books on what to do and some on the unfortunate results of the crisis (Downs, 2009; Gorton, 2010; Krugman, 2012; Stiglitz, 2012). Myths have been debunked and distractions from central issues have been set aside. Now come some good and thoroughly readable books that sum it all up for us and set out what may be expected and/or avoided, as this one does [another such book is Blyth (2013)].LEFT,CENTER, AND RIGHTThe story of the recent financial crisis has taken on a political bent, but both sides cannot honestly claim to have been right. Keynesians (or new Keynesians) have won the day. Middle-of-the-road journalists now admit this. (Hear my sigh of relief. If any of the social sciences was supposed to have had a legitimate paradigm in Thomas Kuhn's sense it was economics.) Some very good academic work has laid to rest the following ideas: (1) that the Community Reinvestment Act of 1977 was largely to blame,1 (2) that overregulation of real estate in South Florida and the Sand States was largely to blame, and (3) that certain debt to GDP ratios ruin prospects for macro- economies from ever recovering.2Still authors seem to want to declare their political leanings, as does Alan Blinder in this book. He's a Democrat who has served on Bill Clinton's Council of Economic Advisors, and he has worked at the Congressional Budget Office and the Federal Reserve. Though a colleague at Princeton, Blinder is not the lightning rod for conservative pundits as is Paul Krugman. There is a good deal in this book about political wrangling between the primary characters whose job it was to fix the financial system after everything went awry (after ''Lehman Day,'' September 15, 2008). Political wrangling later on is also covered and is interesting.UNCONVENTIONAL MONETARY POLICYSeveral things distinguish this book from other financial crisis books. Coming later than most, one important matter is what Blinder calls unconventional monetary policy.This is what the Federal Reserve under Ben Bernanke has been doing lately, after what is usually thought of as conventional monetary policy failed to bring results. The press (and others) use the term ''quantitative easing,'' but usually journalists' explanations lack something in translation. And other forms of unconventional monetary policy have been and are being tried. Blinder goes through four varieties of quantitative easing with seven tried examples within these categories.Blinder calmly analyzes how quantitative easing might lead to inflation once the Fed gets back to conventional monetary policy. But at this point, we are still in the entry phase and nowhere near the exit phase. …

Mortgage Interest Deductions and Homeownership: An International Survey

Abstract: The aim of this paper is to review the international evidence on the impacts of mortgage interest deductions (MID) on homeownership rates. To understand the relationship between the deductions and ...

A Review of Hydro “Fracking” and Its Potential Effects on Real Estate

Abstract: In this paper we review the phenomena of hydro ‘‘fracking’’ operations for oil and gas in the United States. We provide background information on fracking, a summary of federal and state fracking d...

An Empirical Study of the Efficacy of Mixed-Use Development: The Seattle Experience

Abstract: Over the past decade mixed-use real estate has received significant attention amongst real estate practitioners including both developers and city/ regional planners. This attention is understandab...

Topics in Real Estate Research, 1973-2010: A Latent Semantic Analysis

Abstract: With the development and evolution of real estate literature a number of studies, primarily qualitative, have attempted to build structure into the body of published research. This research uses La...

Testing for Persistence in South African House Prices

Abstract: This study examines the time series behavior of South African house prices within a fractional integration modeling framework while identifying potential breaks and outliers. We used quarterly data...

Research in Real Estate, 1973-2010: A Three-Journal Comparison

Abstract: This research compares Real Estate Economics, the Journal of Real Estate Finance and Economics, and the Journal of Real Estate Research in terms of their intellectual contribution to the real estat...

Real Estate Development Process in India

Abstract: Real estate development in emerging markets lacks transparency and is rather a ‘black box’ to foreign direct investors. We apply an empirical method to compare the real estate development process i...

Evaluating the Functional Utility Characteristics of Office Buildings: A Case Study of the Office Market in Ankara, Turkey

Abstract: We apply the hedonic approach to the office property in Ankara and examine office rent determinants and their effects on rental variations. A hedonic regression model is utilized for the estimation...

A Monte Carlo Exploration of the Vertical Property Tax Inequity Models: Searching for a ‘Best’ Model

Abstract: We apply vertical inequity models to real estate data from Lubbock, Texas. We use Monte Carlo simulations to explore the performance of each inequity model. We generate eight different contrived inequity patterns from three different data-generating processes, which create 24 stylized data sets. The first data-generating process treats assessed values as a noisy function of sale prices, which reflect home values. The second process considers the sale price as a noisy function of assessed values. The final process considers both sale prices and assessed values to be a noisy measure of home values. Although our findings do not yield a ''best'' model, the results allow us to draw some conclusions and provide practitioners and academics with a road map to test for vertical tax inequity in future real estate data.(ProQuest: ... denotes formulae omitted.)In the United States, tax assessors typically calculate property taxes as a fixed percentage rate of a property's assessed value (net exemptions). The correctness and fairness of the assessment process is often a point of contention as it can lead to inequities in the property tax structure. A vertically equitable property tax system is one where the taxable values of all properties in the taxing district are assessed at the same percentage of market value. If higher (lower) valued properties are taxed at a lower rate, the taxation system is considered to be regressive (progressive). One possible source of inequity is subjective bias in the assessment process. This bias can arise from barriers to accurately determining values. For example, there may only be a very small number of properties that actually sell in a given year. Valuing assets that trade infrequently requires the application of a subjective process, often involving a mass appraisal technique whose application is more of an ''art than science.'' Another assessment barrier is the inherent asymmetric bias in the system. If a taxpayer is over assessed, they can contest the assessment and potentially have it reduced. If a taxpayer is under assessed, the likelihood is remote that they will bring this under assessment to the attention of the taxing authority.1Regardless of the source of inequity, detecting vertical inequity has been the focus of many academic studies. Currently, the literature lacks a generally accepted method to test for vertical inequity. A primary reason for this deficiency comes from the conceptual differences in the true relationship between a home's sales price, its assessed value, and the true value of the property. For example, many researchers view sales price as a precise measure of true value, while others prefer to view assessed values as the more objective precise measure of the true value, and yet some studies consider both sales price and assessed value to be noisy measures of the true value. These differing points of view lead to alternative empirical estimation techniques for vertical inequity that often result in different conclusions. Furthermore, some models allow for the extent of inequity to differ at different home value ranges, while others do not.The purpose of this paper is to determine the proficiency of the different vertical tax inequity models used in previous studies to identify inequity in tax structures. In conducting this investigation, we attempt to determine whether there is a 'best' model for verifying the existence of vertical property tax inequity. Our analysis begins by testing a sample of residential properties in Lubbock, Texas. Lubbock is a mid-sized city with a history of very stable and slightly increasing property values over the past 20-years. Particularly, the price stability has prevented property values from experiencing a 'boom' or 'bust,' which has plagued many cities and states around the nation. This fact makes Lubbock relatively immune to the ''housing price bubble.'' Our empirical tests show that the standard set of vertical inequity models produce conflicting results. …

Do Survey Results Systematically Differ from Hedonic Regression Results? Evidence from a Residential Property Meta-Analysis

Abstract: In this paper, we evaluate the effect of environmental contamination situations on residential property values. Using the meta-analysis technique, conclusions are drawn about the effect of location...

Valuing Historical Land Claims and Its Loss of Use

Abstract: Historical land claims commonly arise in disputes between government and the former inhabitants of the land. These claims typically relate to a past damage caused either by inadequate compensation or by inappropriate taking of the land. There are opinions voiced in the literature that these claims should be valued differently by the prospective and retrospective approach, respectively. This paper shows the deficiencies and perverse motivation for claims including the optimal timing of the claim induced by the retrospective approach. A new way of valuing the damage that is in the spirit of the prospective approach rooted in modern financial theory and option pricing is suggested and justified. This approach alleviates some deficiencies and spares the need for a long sequence of historical asset prices that are not readily available. Hence, it makes settling such disputes easier and increases the likelihood of arbitration instead of costly court cases.(ProQuest: ... denotes formulae omitted.)Historical land claims commonly arise in disputes between governments and the former inhabitants of the land. Such claims have surfaced in countries such as Australia, South Africa, the United States, and Canada, among others. They typically relate to damages incurred a few decades ago, either by inadequate compensation or by expropriation (inappropriate taking of the land), either indefinitely or for a period of time. Hosios and Smith (2006) (HS) suggest that these two types of claims should be valued differently by the prospective and retrospective approach, respectively. This paper shows the deficiencies and perverse motivation for claims, including the optimal timing of the claim, induced by the retrospective approach. A new way of valuing the damages that is in the spirit of the prospective approach and is rooted in modern financial theory and option pricing is suggested and justified. This approach alleviates some deficiencies and spares the need for a long sequence of historical asset prices that are not readily available. Hence, it makes settling such disputes easier and increases the likelihood of arbitration instead of long and costly court cases.Historical claims usually refer to events that occurred a few decades ago and in remote areas where a liquid market for the asset(s) at hand has not been in existence. Hence information about historical prices, as well as the evolution of prices throughout time, is very sketchy.The ''prospective approach'' advocates that in the case of an alleged inadequate compensation at the time the land was confiscated, the value of the land in dispute as of the expropriation time should be reassessed and brought forward to the time of the claim. Both the reassessment and the future factor coefficient necessary to calculate the current value of the payment deficiency are estimated given only the information known at the time of the (inadequate) compensation and brought forward to the time of the claim.In the case of inappropriate taking over a certain period, loss of use for the intervening period should be valued. The ''retrospective approach'' in such cases is based on the trajectory of the realized evolution of the price of the land during the intervening period and a ''rental rate'' offered by the land each year, which generates an annual cash flow. The value of the cash flow is brought forward to the end of the intervening period and added to the value of the land at that time. The total of these two components is brought forward to the time of the claim.The purpose of this paper is to examine the validity and implications of the way the retrospective approach is executed in practice, comparing it to the prospective approach. In instances where a competitive market exists for a land similar to the land in dispute throughout the intervening period, the realized yearly rental rate and the trajectory of prices are readily available. Consequently, the loss of use is easily calculated when the future value coefficients are also available. …

A Local Property Yield Rate Using An Economic Indicator for Future Growth

Abstract: This paper develops the relationship between local economic growth and the overall property discount rate. A measure of local growth is calculated based on the value the local workforce contributes...