Commuting: In Search of Jobs and Residences

This paper introduces a model which includes residential, job moving, and commuting behavior when labor and housing markets are characterized by market imperfections (imperfect information and moving costs). We examine the consequences of these market imperfections on commuting behavior. An empirical analysis of commuting behavior indicates that workers commute less if they receive more job offers.     

The Influence of Uncertain Job Location on Urban Form and the Journey to Work

Standard urban models assume residents never think about their next job. More likely, the individual value of a given home and the choice of commute length are based not only on the current job site, but also on the expectation of where future jobs will be and the likelihood of both job separations and residential moves. The first factor lessens the value of access to the present job, while the second determines the opportunity cost of moving. Both sets of factors lead to flatter rent gradients and more sprawl than predicted by standard theories. The analysis further suggests that relatively stable jobs are likely associated with relatively shorter commutes. Past studies of the regional balance of jobs and housing, of “wasteful” commuting, of differences in the length of commute by gender, and of spatial tests for discrimination in housing and local labor markets have neglected these considerations, and may yield biased results as a consequence.     

Spatial Lock-in: Do Falling House Prices Constrain Residential Mobility?

Falling house prices have caused numerous homeowners to suffer capital losses. Those with little home equity may be prevented from moving because of imperfections in housing finance markets: the proceeds from the sale of their home may be insufficient to repay their mortgage and provide a down payment on a new home. A data set of mortgages is used to examine the magnitude of these constraints. Estimates show that average mobility would have been 24% higher after 3 years had house prices not declined, and after 4 years, it would have been 33% higher. Among those with high initial loan-to-value ratios, the differences are even greater.     

Negative home equity,economic insecurity,and household mobility over the Great Recession

This paper uses data from the 2007–09 Survey of Consumer Finances panel to examine U.S. households’ decisions to move during the Great Recession and the role of negative home equity and economic shocks, such as job loss, in these decisions. The recession's effects are nonetheless apparent in the notable fraction of homeowners who moved involuntarily due to, for example, foreclosure. Many involuntary moves appear to stem from a combination of negative home equity and adverse economic shocks rather than negative equity alone. Homeowners with both negative equity and economic shocks were substantially more likely to have moved between 2007 and 2009 and to have moved involuntarily. The findings suggest that, analogous to the double-trigger theory of default, the relationship between negative equity and household mobility varies with households’ exposure to adverse shocks.     

Does home owning smooth the variability of future housing consumption?

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner’s house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census micro-data, we find that the cross-sectional variation in house values subsequent to a move is lower for home owners who moved between more highly covarying cities. Our preferred estimates imply that an increase in covariance of one standard deviation reduces the variance of subsequent housing consumption by about 11%. Households at the top end of the covariance distribution who are likely to have owned large homes before moving get the largest reductions, of up to 40% relative to households at the median.     

The effect of home-ownership on labor mobility in the Netherlands

In various macro-studies, home-ownership is found to hamper job mobility and to increase unemployment. This paper addresses similar issues, but uses a micro-econometric framework where both individual job mobility, as well as the probability of being homeowner are modeled simultaneously. Using a panel of individual labor and housing market histories for the period 1989–1998, we estimate a nonparametric model of both job durations and home-ownership. We do not find homeowners to change less from jobs than tenants. Instead, our results suggest that the housing decision is driven by job commitment, and not the reverse. We do however find homeowners to be less vulnerable to unemployment.     

House price appreciation, liquidity constraints, and second mortgages

This paper analyzes how households use second mortgages in response to shocks to housing wealth. Two related questions are examined: Do households use home equity in response to house price appreciation? Are liquidity constraints important for homeowners? A theoretical model shows that liquidity-constrained households respond more strongly to house price changes than unconstrained households. Using PSID, I find noteworthy differences in borrowing patterns of homeowners by the ratio of wealth to income. Low wealth-to-income homeowners exhibit a strong reaction to house price appreciation, whereas high wealth-to-income ones do not. The results indicate the importance of liquidity constraints among homeowners.     

House price appreciation,liquidity constraints,and second mortgages

This paper analyzes how households use second mortgages in response to shocks to housing wealth. Two related questions are examined: Do households use home equity in response to house price appreciation? Are liquidity constraints important for homeowners? A theoretical model shows that liquidity-constrained households respond more strongly to house price changes than unconstrained households. Using PSID, I find noteworthy differences in borrowing patterns of homeowners by the ratio of wealth to income. Low wealth-to-income homeowners exhibit a strong reaction to house price appreciation, whereas high wealth-to-income ones do not. The results indicate the importance of liquidity constraints among homeowners.     

Housing capital-gains taxation and homeowner mobility: Evidence from the Taxpayer Relief Act of 1997

We provide new evidence on the impact of housing capital-gains taxation on homeowner behavior by examining residential mobility before and after the Taxpayer Relief Act of 1997 (TRA97), which generated the most sweeping reform of capital-gains taxation in the last two decades. In addition to lowering marginal tax rates on long-term capital gains for all assets, TRA97 also eliminated any differential treatment of housing gains above and below age 55, allowing all homeowners to qualify for capital-gains exclusions. Utilizing data drawn from the Current Population Survey (CPS) on either side of the law change (1996 and 1998) on homeowners just above (56–58 year olds) and below (52–54 year olds) the age-55 threshold and a reduced-form, difference-in-difference empirical approach, our estimates suggest that the repeal of the differential capital-gains tax treatment by age embodied in TRA97 had an economically important and statistically significant impact on the residential mobility of under-55 homeowners. Across a variety of specifications, the repeal raised the mobility rate by around 1–1.4 percentage points, which, for a mean mobility rate of 4 percentage points, represented an increase in the mobility rate of homeowners in their early 50s by 22–31%. Furthermore, the bulk of this effect was concentrated among highly mobile homeowners who a priori were more likely to have wanted to trade down (e.g., divorced, empty nesters), those facing higher capital gains tax rates, and those living in states that had experienced higher rates of nominal appreciation.     

TESTS OF THE STANDARD URBAN MODEL: A Micro (Trade-Off) Alternative

Three methods of testing the validity of the monocentric model (the negative house price gradient, the wasteful commuting approach, and the hypothesis of a trade-off between housing expenditures and commuting costs) are evaluated. The negative house price gradient is not supported by several recent hedonic models. "Wasteful" commuting is a poor test because it persists even a policentric world and may be more the result of the weakness of journey-to-work minimization as a key determinant of residence and/or workplace location. This study uses the commuting information presented in the 1985 American Housing Survey in eight large metropolitan areas to show that the trade-off hypothesis fails badly. Heterogeneous Preference for housing, commuting and indeed for all goods and services, combined with a wide variety of workplaces and choice of residential locations at highly, variable rents and house prices may be the major reason why the trade-off is not generally observed.     

Residential mobility and housing tenure choice

This paper treats housing tenure choice and residential moves as joint decisions. The parameters of a semi-Markov model with two states, renting and owning and continuous time, length of stay, are estimated with data from the U.S. Panel Study of Income Dynamics for 1970–1980. Several distributional assumptions for residence spells confirm the basic role played by housing prices, wealth and other characteristics. Higher wealth implies higher likelihood of owning higher mobility for renters and lower for owners. Households with educated hands are more mobile. Housing modal prices may have statistically very significant coefficients, but not always as anticipated.     

Residential search and choice of displaced households

Centrographic analysis is used to compare the residential search and choice behavior of 41 households who experienced either short-term or long-term displacement costs after moving out of the inner city of Saskatoon, with the behavior of 90 households who moved as if voluntarily. While the displaced households tended to search for housing in the same neighbourhoods as the voluntary movers, they chose a “new” home much farther away from their “old” home. By means of a logistic regression, the reasons for this more distant move are inferred to reflect both the tightness of the housing market and the housing search barriers that displaced households, who were more likely to be young or old renters, would have encountered.     

Negative equity and wages

We examine the relationship between housing equity and wage earnings using nine waves of the national American Housing Survey from 1985 to 2003. Employing a rich set of time and place controls, a synthetic mortgage instrumental variable strategy, and a first difference estimator we find that people underwater on their mortgage command a significantly lower wage than other homeowners. The finding survives a number of robustness checks for reverse causality and unobserved heterogeneity. We also explore other determinants of “house lock” including loss aversion, a low existing mortgage interest rate and property tax assessment caps, but do not find these factors mitigate the effect of negative equity on wages.     

Residential mobility with job location uncertainty

This paper investigates the relationship between job changes and residential mobility. A job change may be prompted by reasons unrelated to factors associated with housing consumption. However, a job change may lead to an adjustment to housing consumption, i.e., residential relocation. Previous studies find that job relocations are positively associated with residential mobility. This paper departs from previous studies by looking at the effects of an uncertain future job location on residential mobility and mobility expectation. It is conjectured that with the existence of costs of residential mobility, a household head's likelihood for changing jobs in the future dampens the household's propensity to move, but encourages the formation of mobility expectation. These conjectures are examined empirically using data from the Panel Study of Income Dynamics and they are confirmed.     

Interest rates, income, and home improvement decisions

The demand for additional housing is modeled demonstrating that higher interest rates make home improvements more attractive relative to moving when homeowners hold fixed rate mortgages. Technological constraints on home improvements make improving less attractive relative to moving when incomes have risen. Empirical evidence using cross-sectional data is presented suggesting that the probability of making home improvements is positively related to increases in the current interest rate and negatively related to increases in income. An explanation is offered for the recent rise in home improvement expenditures in the face of slower economic growth and higher mortgage interest rates.     

INCIDENCE AND DETERMINANTS OF HOUSING UPGRADING IN CAIRO

Cairo is a very high density metropolis, where informal multi-unit housing accounts for a large share of the housing stock. Combined with a low residential mobility rate, this argues for dwelling improvements as a key element by which lower income homeowners can improve their housing circumstances. The article reports the extent of dwelling upgrading for this group and analyzes the determinants separately of both maintenance and major improvements. The analytic model is based on prior work, adjusted to the Egyptian context and available data. The incidence of improvements appears to be lower in Cairo than in more tropical megacities. However, the findings broadly confirm a general similarity in the determinants of housing investments by lower-income Cairene owners with those of lower income owners in more tropical locations. Three factors stand out: tenure security, household income, and the stimulation effects on investment of better infrastructure and poor dwelling conditions.     

Housing appreciation, mortgage interest rates, and homeowner mobility

This paper presents a model of the optimal timing of tradeup, which considers consumption and investment motives of homeownership. Households determine the optimal timing of trading up so as to maximize their intertemporal utility of both housing and nonhousing consumption. First we consider current homeowners, who already own a house and expect that they trade up to a more valuable house at some point in the future. Housing appreciation tends to induce an earlier optimal timing of trading up. Moreover, housing appreciation makes current homeowners better off in terms of welfare. However, current homeowners suffer from a rise in mortgage interest rates. Second, we consider first-time home buyers, who have decided to buy a house and expect to trade up to a more valuable house in the future. Their initial housing consumption is determined by an initial downpayment constraint. In this case, the effect of housing appreciation on the optimal timing of trading up is ambiguous and, unlike current homeowners, first-time home buyers suffer from housing appreciation. Moreover, as current homeowners, first-time home buyers suffer from a rise in mortgage interest rates. Most of the theoretical analytic results are ambiguous. Accordingly, we perform numerical simulations based on the theoretical model in order to determine the most likely comparative effects for a stylized set of parameters.As is apparent, the model captures the recent observations on homewner mobility and suggests that macroeconomic variables such as housing appreciation and mortgage interest rates effect the optimal timing of trading up and homeowner's welfare. Nevertheless, the model in this paper has several shortcomings, which should be the subject of future research. First, transaction costs are ignored. If transaction costs are incorporated, the lock-in effect from a rise in mortgage interest rates is well explained. However, the general analysis above is not altered in any essential way. Second, multiple moves are not considered in this model. Therefore, we concentrate on the timing of one tradeup as opposed to the timing and frequency of trading up. In a different vein, it would be interesting to test empirically the importance of the effects of macroeconomic variables on trading up by using microdata.     

Residential Choice, Mobility, and the Labor Market

There is substantial evidence suggesting that the process of suburbanization creates new job opportunities that are not equally exploited by all workers. In order to explain this phenomenon, a simple model is developed which incorporates borrowing constraints as an important restriction on moving decisions, obstructing the necessary labor flows between jurisdictions required to equalize (net) wages. In essence, people who cannot borrow will be restricted in terms of their capability of changing residence location and therefore will have limited possibilities of working in distant labor markets, or they will be subject to excessive commuting. Furthermore, the labor allocation induced by households' behavior facing these constraints affects consumer welfare, production, and producers' profits. The outcomes with perfect credit markets and with borrowing restrictions are calculated and the economic welfare levels are compared. As wages are flexible, they adjust to reflect the relative scarcity of workers present in each jurisdiction. Consequently, some of the negative effects of the borrowing constraints are compensated, so the outcomes cannot be easily compared. Some numerical examples are constructed to have an idea of the possible outcomes under different conditions. Finally, it is found that allowing for moving cost deductions from taxable income may help to alleviate the problem.     

United States

Despite a slight downgrade to GDP growth in Q1 and much slower growth expected in Q2 (reflecting the sequester and higher taxes) the recovery appears set to accelerate in the second half of the year. There are encouraging signs that private demand is picking up, with employment growth, consumer confidence and the housing market continuing to strengthen. This will push GDP growth to over 3% by the end of the year and to an average of 2.9% in 2014. The key factors strengthening growth in the face of tigher fiscal policy are: Improving household finances – Consumer spending is being bolstered by wealth effects from strong equity and house prices. Real wages are showing healthy growth again and, combined with rising employment, are helping to mitigate the impact of higher taxes on household disposable income. Moreover, with debt ratios at their lowest levels since 2004, it looks like deleveraging by households is ending. A stronger housing market – housing starts were up 6.8% in May to a level nearly 30% up on a year earlier. We expect residential investment to increase over 13% in 2013 and a further 9% in 2014 despite recent increases in mortgage rates. Increased home sales will also boost spending on furniture and appliances, which are often bought when people move home. Competitive manufacturing sector – US unit labor costs are the most competitive in over 30 years, and many firms are also benefiting from relatively low natural gas prices. This is supporting exports in the face of subdued world demand, although the trade deficit has deteriorated as stronger domestic demand has lifted imports. Improved competitiveness is also encouraging higher investment, which is back to pre‐recession levels…