Showing papers in "Real Estate Economics in 2020"
TL;DR: This paper showed that macroeconomic uncertainty affects the housing market in two significant ways: first, uncertainty shocks adversely affect housing prices but not the quantities that are traded; and second, when both uncertainty and local demand shocks are introduced, the effects of uncertainty on housing market dominate that of local labor demand shocks on housing prices, median sale prices, the share of houses selling for a loss and transactions.
Abstract: This article shows that macroeconomic uncertainty affects the housing market in two significant ways. First, uncertainty shocks adversely affect housing prices but not the quantities that are traded. Controlling for a broad set of variables in fixed-effects regressions, we find that uncertainty shocks reduce both housing prices and median sales prices in the amount of 1.4% and 1.8%, respectively, but the effect is not statistically significant for the percentage changes of all homes sold. Second, when both uncertainty and local demand shocks are introduced, the effects of uncertainty on the housing market dominate that of local labor demand shocks on housing prices, median sale prices, the share of houses selling for a loss and transactions. The aforementioned effects are largest for the states that exhibit relatively high housing price volatilities, suggesting real options effects in the housing market during the times of high uncertainty.
52 citations
TL;DR: In this article, the impact of green building on loans in the CMBS market was studied. And they found that green buildings carry 34% less default risk than non-green buildings.
Abstract: We study the impact of green building on loans in the CMBS market. A hazard model shows green buildings carry 34% less default risk, all else equal. A matched‐sample analysis gives similar results. We attribute the effect to a loan‐to‐value channel, where risk is lowered by a green price premium. The benefit comes at least partly from the level of green achievement, not only the label itself. Loans on buildings that were green at loan origination have slightly better terms than loans on nongreen buildings. That difference is growing over time, but the effect is economically small compared to default risk.
50 citations
TL;DR: Zhang et al. as discussed by the authors evaluated the impact of real estate wealth on consumer spending in urban China associated with housing value, housing equity, financial assets and household income using longitudinal data from the China Family Panel Studies (CFPS) survey.
Abstract: Impacts on consumer spending in urban China associated with housing value, housing equity, financial assets and household income are evaluated using longitudinal data from the China Family Panel Studies (CFPS) survey. Findings suggest that the housing wealth effect on household consumption in China is much larger than has been shown for developed economies. The larger impact is prospectively related to structural limits on investing which favor real estate ownership, along with the dominant position of housing in total household wealth. We also find that a household's consumption varies across housing tenure. Homeowners having joint ownership of property on average have the highest consumption propensity, while those having sole ownership of property consume the most in response to appreciation in housing wealth.
48 citations
TL;DR: In this article, the authors compare the performance of three real estate strategies: core, value-added and opportunistic, and conclude that the value added funds have strongly underperformed and the returns from opportunistic funds have weakly outperformed the returns available from core.
Abstract: Real estate strategies broadly fall into three categories: core, value-added and opportunistic. This empirical examination of net returns from these three strategies indicates that, on a risk-adjusted basis, the value-added funds have strongly underperformed and the returns from opportunistic funds have weakly underperformed the returns available from core funds. In so concluding, this article departs from standard asset-pricing models in two important respects: the total risk is used and the cost of borrowing increases as leverage increases. While the first departure has no substantive effect, the second departure lowers the estimate of the underperformance of noncore funds.
46 citations
TL;DR: In this article, a new uncertainty measure, Real Estate Uncertainty (REU), was proposed for the real estate sector and compared to other well-established measures in the literature, such as the Macro Uncertainity (MU) by Jurado, Ludvigson and Ng.
Abstract: The objective of this article is twofold: first, we construct a new uncertainty measure that is specific to the real estate sector; second, we compare our uncertainty measure to other well-established measures in the literature, such as the Macro Uncertainty (MU) by Jurado, Ludvigson and Ng. We show that our Real Estate Uncertainty (REU) measure accounts for twice as much of variation in housing prices-and starts compared to the MU. Furthermore, vector autoregressions and Granger-causality analysis show that our uncertainty measure affects housing starts-and prices-in contrast to the other uncertainty measures that affect only housing starts.
43 citations
TL;DR: In this article, a data-driven measure of architectural similarity was developed to condense three-dimensional shapes to univariate shape distributions, which are good predictors of human perceptions of shape similarity and linked to property attributes and transaction prices.
Abstract: This paper empirically confirms one core motivation for architectural zoning: Shape homogeneity among neighboring homes increases the value of residential buildings. Drawing on large-scale shape and transaction data, this study first develops a data-driven measure of architectural similarity, condensing three-dimensional shapes to univariate shape distributions. These algorithm-based similarity estimates are good predictors of human perceptions of shape similarity and are linked to property attributes and transaction prices. For the city of Rotterdam, a price premium of approximately 3.5 percent is estimated for row houses within very homogeneous ensembles over buildings facing heterogeneous neighbors.
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32 citations
TL;DR: In this paper, the use of unsecured debt, which contains standardized covenants that place limits on total leverage and use of secured debt, is associated with lower leverage outcomes and the firm value is sensitive to leverage levels.
Abstract: Using equity REIT data, we show empirically that the use of unsecured debt, which contains standardized covenants that place limits on total leverage and the use of secured debt, is associated with lower leverage outcomes. We then show that firm value is sensitive to leverage levels, where lower leverage is associated with higher firm value. In the presence of weak managerial governance, our results suggest that unsecured debt covenants function as a managerial commitment device that preserves the firm's debt capacity to enhance financial flexibility.
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31 citations
TL;DR: In this article, the authors investigate how mortgage debt impacts household consumption behavior and various components of household consumption and find that households with a mortgage consume a higher portion of their income than households without a mortgage.
Abstract: The high growth rate of mortgage debt in various emerging and developed economies has captured headlines following the financial crisis. In this paper, we investigate how mortgage debt impacts household consumption behavior and various components of household consumption. Utilizing a comprehensive household survey data from China, we show that households with a mortgage consume a higher portion of their income than households without a mortgage. This is in line with the argument that having a mortgage reduces the uncertainty that the household faces regarding how much to save each month in order to be able to own a house, and this reduced uncertainty leads to lower monthly savings for the purpose of buying a house. We also find that among households with a mortgage, those who spend a larger share of their income on mortgage payments spend less of their income on consumption, reflecting the crowding out effect of mortgage payments on household consumption. Furthermore, we show that a government policy of decreasing the maximum loan-to-value ratio has a significant impact on the consumption behavior of households. The current paper offers the first evidence of the impact of growing mortgage debt on the consumption behavior of households. Our results will have implications for government policies that encourage mortgage borrowing.
28 citations
TL;DR: In this article, the authors demonstrate that the true price-TOM relationship should be nonlinear and characterized by an inverted U-shaped curve wherein the selling price increases with TOM up to a certain threshold, reflective of a positive exposure effect and decreases thereafter to reflect a negative stigma effect.
Abstract: The nature of the relationship between a property's selling price and its marketing time in the housing market remains an open question to date, despite almost 40 years of inquiry and hundreds of regressions conducted on various data sources. This study attempts to settle the long-standing open question by examining the issue from a new perspective. We demonstrate that the true price–TOM relationship should be nonlinear and characterized by an inverted U-shaped curve wherein the selling price increases with TOM up to a certain threshold, reflective of a positive exposure effect and decreases thereafter to reflect a negative stigma effect. This relationship is borne out in an empirical analysis using a large sample of home sales from the Hampton Roads, Virginia metropolitan area during an extended period of time. We then formulate hypotheses about the benefit of search by home sellers, which are subsequently confirmed by the empirical findings.
20 citations
TL;DR: The authors showed that immigrants can raise neighborhood house prices, at least in the case of the wealthy immigrants that they study, by exploiting a surprise suspension and subsequent closure of a popular investor immigration program in Canada to use a difference-in-differences methodology comparing wealthy immigrant destination census tracts to nondestination tracts.
Abstract: Research on immigration and real estate has found that immigrants lower house prices in immigrant destination neighborhoods. In this article, we find that this latter result is not globally true. Rather, we show that immigrants can raise neighborhood house prices, at least in the case of the wealthy immigrants that we study. We exploit a surprise suspension and subsequent closure of a popular investor immigration program in Canada to use a difference‐in‐differences methodology comparing wealthy immigrant destination census tracts to nondestination tracts. We find that the unexpected suspension of the program had a negative impact on house prices of 1.7–2.6% in the neighborhoods and market segments most favored by the investor immigrants. This leads to an approximate lower bound on the effect of capital inflows of 5%.
20 citations
TL;DR: In this paper, the authors explored the spatial dynamics of the components of house prices and the capitalized value of the option to redevelop housing at the property level by incorporating the likelihood of exercising the redevelopment option (the probability of redevelopment) into spatial and non-spatial hedonic house price models.
Abstract: This study draws from the redevelopment, real option, and urban spatial growth literatures to explore the spatial dynamics of the components of house prices. More specifically, the paper proposes that the capitalized value of the option to redevelop housing at the property level can be estimated by incorporating the likelihood of exercising the redevelopment option (the probability of redevelopment) into spatial and non-spatial hedonic house price models. Accordingly, option values are estimated for properties across the spectrum of the housing life cycle. Results from the study reveal a substantial level of spatial variation and clustering in the predicted option values, indicating that location is a major determinant of redevelopment and real option values. Furthermore, the results provide new evidence in support of the theoretical construct that properties purchased for immediate redevelopment are only valued for the underlying land.
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TL;DR: Wang et al. as mentioned in this paper investigated the value of going green in the hotel industry by combining the traditional hedonic pricing model with the state-of-the-art content analysis of online reviews.
Abstract: Based on several unique datasets in Beijing, this paper investigates the value of going green in the hotel industry by combining the traditional hedonic pricing model with the state-of-the-art content analysis of online reviews. The results indicate that, the rate of complaints about the indoor environmental quality of green hotels is roughly 19% lower than that for non-green hotels. Hedonic regression analysis concludes that green hotels enjoy a significant room rate premium of 6.5% without reducing occupancy rates, mainly due to improved indoor environmental quality. Recognizing the presence of such co-benefits is likely to induce hoteliers to embrace green practices.
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TL;DR: In this article, the effect of economic policy uncertainty on house prices across 10 different geographical regions of England and Wales was investigated by means of the Autoregressive Distributed Lag (ARDL) bounds cointegration test.
Abstract: This paper empirically investigates the effect of the economic policy uncertainty on house prices across 10 different geographical regions of England and Wales. The empirical study is conducted by means of the Autoregressive Distributed Lag (ARDL) bounds cointegration test. Results show a stable long‐run relationship (cointegration) between house prices and its determinants (including economic policy uncertainty) in nine of the regions. Results also evince long‐term and short‐term negative effect of uncertainty to house prices. These results clearly indicate the importance of economic policy uncertainty in the determination of UK house prices and demand.
TL;DR: The authors empirically analyzes whether core and noncore private income producing properties have different investment returns, using a large sample of about 5,000 individual properties during the 1997-2014 period, and finds that core properties have lower systematic risk but higher returns than noncore properties before and after adjusting for both systematic and nonsystematic risk.
Abstract: This article empirically analyzes whether core and noncore private income producing properties have different investment returns, using a large sample of about 5,000 individual properties during the 1997–2014 period. We use a holding-period factor model to control for both systematic risk, including loadings of both public equity factors and a real estate factor, and nonsystematic risk. We find that core properties have lower systematic risk but higher returns than noncore properties before and after adjusting for both systematic and nonsystematic risk.
TL;DR: In this paper, the authors contribute to the literature on house price diffusion by carrying out their analysis at three levels: CBSA (nationwide), town and census tract (Greater Boston Area).
Abstract: We contribute to the literature on house price diffusion by carrying out our analysis at three levels: CBSA (nationwide), town and census tract (Greater Boston Area). We estimate fixed‐effect models of house price growth on lagged growth (“Persistence”), nearby lagged growth (“Spillovers”) and Fundamentals growth. CBSA‐level Persistence and Spillover Effects are positive and significant. These large ripple/contagion effects likely contributed to the recent national‐level housing downturn. We find evidence of smaller town‐level Persistence and Spillover Effects. Hence, diffusion appears stronger across than within housing markets. Fundamentals and price expectations drive price diffusion, leaving room for bubbles from future price overoptimism.
TL;DR: In this paper, the authors define a new construct for urban economic and investment analysis, referred as a "development asset value index" (DAVI), which revisits the conventional wisdom that investment in real estate development is riskier than investment in stabilized property assets.
Abstract: In this article, we define a new construct for urban economic and investment analysis, which revisits the conventional wisdom that investment in real estate development is riskier than investment in stabilized property assets. This new construct, referred as a “development asset value index” (DAVI), is a value index for newly developed properties (only) in a given geographical property market. It tracks longitudinal changes in the highest and best use (HBU) value of locations, and it reveals developer and landowner behavior taking advantage of the optionality inherent in land ownership. In particular, the DAVI reflects developers' use of flexibility in the exercise of the call option to (re)develop the property to any legal use and density. We empirically estimate a DAVI for commercial property (i.e., central locations) and compare it with a corresponding traditional transaction‐price‐based property asset price index (PAPI) corrected for depreciation. We believe that the difference primarily reflects the realized value of flexibility in land development. We find that the DAVIs display greater value growth and are smoother over time and less cyclical than their corresponding PAPIs for the same locations. This suggests that developers successfully use flexibility, and that development may be riskier than stabilized property investment due primarily only to leverage effects (construction costs). Practical implications are also discussed.
TL;DR: In this article, the authors examined the effects of retail conversions (conversions from medical marijuana to retail marijuana stores) on neighboring house values in Denver, CO. The study period reflects a time before and after retail marijuana sales became legal in Colorado in 2014.
Abstract: Using publicly available data from the city of Denver and the state of Colorado, this study examines the effects of retail conversions (conversions from medical marijuana to retail marijuana stores) on neighboring house values in Denver, CO. The study period reflects a time before and after retail marijuana sales became legal in Colorado in 2014. Using a difference‐in‐differences approach, we compare houses that were in close proximity to a conversion (within 0.1 miles) to those that are farther away from a conversion. We find that single‐family residences close to a retail conversion increased in value by approximately 8% relative to houses that are located slightly farther away. We perform a battery of robustness checks and falsification tests to provide additional support for this finding. To our knowledge, this is the first study to examine at a microlevel the highly localized effect of retail marijuana establishments on house prices and hope that it can contribute to the debate on retail marijuana laws.
TL;DR: In this article, the authors study the diversification benefits of REIT preferred and common stock using a utility-based framework in which investors segment based on risk aversion, and conduct their analysis using data from 1992 to 2012.
Abstract: We study the diversification benefits of REIT preferred and common stock using a utility based framework in which investors segment based on risk aversion. Taking the view of a long run investor, we conduct our analysis using data from 1992 to 2012. We examine optimal mean-variance portfolios of investors with different levels of risk aversion given access to different classes of assets and establish three main results. First, REIT preferred and common stock provides significant diversification benefits to investors. REIT common stock helps low risk aversion investors attain portfolios with higher returns, while REIT preferred stock helps high risk aversion investors by providing a venue for risk reduction. Both asset classes receive material allocations over plausible levels of risk aversion. Second, while REIT preferred stock appears to behave somewhat like a hybrid debt/equity asset, its risk/return profile appears to not easily be replicated by those asset classes. When given the opportunity, investors will reduce allocations to REIT common stock and investment grade bonds and invest in REIT preferred stock. Finally, realistic investor constraints matter empirically. Conclusions drawn from the empirical analysis are markedly different under these constraints compared to the classical unconstrained setting.
TL;DR: In this paper, the authors find that consumers are willing to pay significantly more for access to rail transit in more congested areas, with wealthier residents and those owning fewer cars paying a higher premium for accessing rail transit.
Abstract: Using unique data sets of Beijing's congestion patterns and housing prices, I find that consumers are willing to pay significantly more for access to rail transit in more congested areas. Transit accessibility, however, offers little travel advantage outside of dense urban areas. The expansion of the metro network mitigates the costs of road congestion, creating both private and social benefits. Two policy initiatives aimed at reducing congestion are found to have achieved positive value effects. Further analysis reveals heterogeneous demand for accessibility, with wealthier residents and those owning fewer cars paying a higher premium for access to rail transit.
TL;DR: In this article, the authors extend the theory of investment under uncertainty and examine real options effects on rent, and find a significant effect of housing price on rent and draw important policy implications.
Abstract: The conventional wisdom that housing prices are the present value of future rents ignores the fact that unlike dividends on stocks, rent is not discretionary. Housing price uncertainty can affect household property investments, which in turn affect rent. By extending the theory of investment under uncertainty, we model the renter's decision to buy a house and the landlord's decision to sell as the exercising of real options of waiting and examine real options effects on rent. Using data from Hong Kong and mainland China, we find a significant effect of housing price on rent and draw important policy implications.
TL;DR: This paper examined institutional investors' entry into the equity side of the single-family detached housing market using an asset illiquidity framework and found that institutional investors purchased owner-occupied houses after the real estate crisis for approximately 6.3-11.8% less than owner-occupiers.
Abstract: We examine institutional investors’ entry into the equity side of the single‐family detached housing market using an asset illiquidity framework. We find that institutional investors purchased owner‐occupied houses after the real estate crisis for approximately 6.3–11.8% less than owner‐occupiers. The large discount was in addition to distressed sale and cash purchase discounts which, when combined, highlight the low liquidation value for owner‐occupied housing. The results suggest that asset illiquidity is an important cost of leverage in the owner‐occupied housing market.
TL;DR: In this paper, the authors examine the incentives for lenders to steer borrowers into piggyback loan structures to circumvent regulations requiring primary mortgage insurance (PMI) for loans with loan-to-value ratios (LTV) above 80%.
Abstract: In this article, we examine the incentives for lenders to steer borrowers into piggyback loan structures to circumvent regulations requiring primary mortgage insurance (PMI) for loans with loan‐to‐value ratios (LTV) above 80%. Our empirical analysis focuses on propensity score‐matched portfolios of piggyback and single‐lien loans having the same combined LTV based on a full set of observed risk characteristics. Our results confirm that mortgages originated with the piggyback structure have much lower ex post default rates and faster prepayment speeds than corresponding PMI loans. We also find a significant causal effect of interstate banking deregulation on the growth of piggybacks in these years, confirming that the ex post performance gap is primarily driven by lender steering on the supply side and not by borrower self‐selection. We then perform a number of tests to explore different origination and execution channels of mortgage steering.
TL;DR: In this paper, the authors developed a model of a monocentric, oil-exporting city to predict a "twist" of the house price gradient with an oil price change due to the combined producer price and transportation cost effects.
Abstract: We develop a model of a monocentric, oil-exporting city. The model predicts a “twist” (rotation combined with a level shift) of the house price gradient with an oil price change due to the combined producer price and transportation cost effects. Empirical findings support the predictions, with house price changes positively linked to the price of oil in cities specialized in oil and gas-related industries, and negatively linked in suburban areas of all cities. These results quantify the large and differential risks to house prices associated with oil price changes both within and across cities. Overall, estimates suggest a 50 percent change in the price of oil results in a city-wide house price change of 15 percent over five years in a city specialized in the production of oil (export employment share of 50 percent), whereas house prices for units greater than 15 miles from the city-center change in relative terms by -1.5 percent over the same period.
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TL;DR: Using home equity conversion mortgage (HECM) loan-level data, the authors quantifies the major risks of reverse mortgages and shows that higher housing prices induce higher demand for reverse mortgages among elderly homeowners.
Abstract: This article presents some theoretical and empirical approaches for identifying interactions among fundamental economic variables that determine housing prices. Using home equity conversion mortgage (HECM) loan‐level data, this study quantifies the major risks of reverse mortgages and shows that higher housing prices induce higher demand for reverse mortgages among elderly homeowners. Senior citizens rationally hold pessimistic expectations about future housing price appreciation and lock in their home‐equity gains by obtaining reverse mortgages, which in turn led to the substantial HECM growth prior to the financial crisis of 2008. A novel simulation also forecasts HECM loans under various economic scenarios. From a mortgage credit perspective, these findings generate several policy implications for the implementation of “HECM 3.0.”
TL;DR: In this paper, the authors defined the opening of a major new subway in Seoul as a treatment for apartments close to the new rail stations, and compared hedonic estimates based on multivariate hedonistic methods with a machine learning (ML) approach.
Abstract: Urban rail transit investments are expensive and irreversible. As people differ with respect to their demand for trips, their value of time, and the types of real estate they live in, such projects are likely to offer heterogeneous benefits to residents of a city. Defining the opening of a major new subway in Seoul as a treatment for apartments close to the new rail stations, we contrast hedonic estimates based on multivariate hedonic methods with a machine learning (ML) approach. This ML approach yields new estimates of these heterogeneous effects. While a majority of the “treated” apartment types appreciate in value, other types decline in value. We cross‐validate our estimates by studying what types of new housing units developers build in the treated areas close to the new train lines.
TL;DR: In this article, a fixed-term contract is available, only short-term tenants choose it, and the information asymmetry is dissolved, realizing social efficiency, while owners cannot foresee the intended tenure length of prospective tenants.
Abstract: In Japan, tenants are protected in the sense that owners must compensate them for evicting them against their will, while owners cannot foresee the intended tenure length of prospective tenants. If owners cannot specify the term of a lease, social inefficiency emerges: (i) detached houses owned by individual households remain vacant for a certain period; (ii) alternatively, landlords’ newly constructed apartments, which are free from eviction risk, accommodate a large proportion of tenants; and (iii) the apartments are rebuilt frequently even though they remain viable. If a fixed-term contract is available, only short-term tenants choose it, and the information asymmetry is dissolved, realizing social efficiency.
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TL;DR: The authors empirically examined whether gender inequality exists in the mortgage market, specifically whether a borrower's gender affects the loan contract rate charged, beyond the impact of the borrower's probability of default and prepayment.
Abstract: Using a sample of 30-year fixed-rate subprime mortgage loans, this article empirically examines whether gender inequality exists in the mortgage market, specifically whether a borrower's gender affects the loan contract rate charged, beyond the impact of the borrower's probability of default and prepayment. The results, based on a competing-risks loan hazard model, reveal that borrowers of different genders have different loan termination patterns. After controlling for the probability of a borrower defaulting or prepaying, female borrowers pay higher contract rates in the subprime mortgage market over the study period.
TL;DR: In this paper, the authors estimate regression models of housing prices to determine the effect of new clubs on nearby residential property prices in Seattle, exploiting the termination of a 17-year moratorium on openings and find no evidence that strip clubs have "secondary effects".
Abstract: Municipalities regulate sexually oriented businesses (SOBs) through the “secondary effects” doctrine, which justifies limiting First Amendment speech protections inside SOBs. Negative effects of SOBs on nearby neighborhood quality are a frequently cited secondary effect. Little empirical evidence exists that SOBs generate such negative externalities. If SOBs generate negative externalities, then nearby property prices should decrease when a strip club opens. We estimate regression models of housing prices to determine the effect of new clubs on nearby residential property prices in Seattle, exploiting the termination of a 17‐year moratorium on openings and find no evidence that strip clubs have “secondary effects.”