Housing Tenure in a Model of Consumer Choice: A Simple Diagrammatic Analysis

The paper begins with a general model of demand for housing in an intertemporal utility maximization framework. Under standard assumptions the consumer is indifferent between owning and renting. Relaxation of various assumptions would explain tenure choice, but this is mathematically complex. As an alternative, a diagrammatic model of consumer choice over one period is presented which shows the effects of income, savings, housing and other prices, mortgage interest rates, rates of return on alternative investments, and tastes. Again under standard assumptions the consumer is indifferent about housing tenure. The effects on tenure choice of a change in the assumption about the availability of mortgage credit, rates of return on alternative investments and income taxes are demonstrated.     

Finnish Homes—Through Passages or Traps?

This is a study of tenure choice, housing demand and mobility in the submarkets of the Helsinki metropolitan area. The empirical analysis is based on data on households, type of tenure, housing characteristics and mobility for a sample of Helsinki residents at the end of 1980s. According to our results the probability of owning is affected not only by user costs of alternative tenure forms but also by permanent income and demographic variables. Results from the tenure specific housing demand models indicate that there are non-neutralities in the housing markets. Permanent income elasticities of housing demand are clearly positive in owner-occupied sector and systematically higher than in the rented sector. The demand for owner-occupied housing depends very strongly on the age of the household head. User cost per housing unit affects housing demand negatively in both tenure forms. Effective demand is greater in private housing sector. The results suggest that owner-occupied living is preferred with heavily subsidized households the least likely to move. In the rental sector, where the probability of moving is higher, it is also true that the most heavily subsidized households are the least likely to move.     

A Note on Inflation and Relative Tenure Prices

This article develops a simplified model of housing costs to analyze the effects of the expected rate of inflation on residential tenure choice. Inflation, working though the Federal Tax Code, affects a number of the components of housing costs in ways which vary between tenure modes. On net, the tax subsidy to owner-occupancy is more positively leveraged with respect to expected inflation than are tax preferences for rental residential real estate. In fact, it is likely that higher expectations of inflation will reduce the after-tax cost of owner-occupied housing.     

Choice of Mortgage Contracts: Evidence from the Survey of Consumer Finances

This study revisits the empirical question of the determinants of the choice between fixed‐ and adjustable‐rate mortgages using data from the Survey of Consumer Finances that overcome some of the data limitations in previous studies. The results from a logit model of mortgage choice indicate that pricing variables and affordability are important considerations. We also find that factors, such as mobility expectations, income volatility and attitudes toward financial risk largely influence mortgage choice, with more risk‐averse borrowers preferring fixed‐rate mortgages. For households that are less risk averse, the mortgage type choice decision is less sensitive to pricing variables and income volatility, and affordability factors are not significant. These findings provide empirical support that underscores the importance of attitudes toward risks in mortgage choice.     

Risk and Return to Housing, Tenure Choice and the Value of Housing in an Asset Pricing Context

Homeowners do not diversify their risky home equity because of fixed costs of issuing securities and information costs. An asset pricing model is developed for homeowners with the undiversifiable home equity asset. Homeowner value and house value to diversified landlords are compared, and a tenure choice equation is developed. We demonstrate the existence of a rational expectations equilibrium under appropriate conditions.     

Regressive Interest Rate Expectations and Mortgage Instrument Choice in the United Kingdom Housing Market

The paper considers the choice of mortgage instrument when the rate of interest is fixed for a short duration, with reversion to a variable (bullet) rate mortgage contract. The research is the first direct test for regressive interest rate expectations using United Kingdom data while testing for wealth and portfolio effects. The econometric modeling uses a variety of nonparametric and parametric techniques to control for classification error in the dependent variable. There is evidence that households adopt regressive interest rate expectations. The lack of statistical significance of wealth and portfolio effects confirms the short run cash flow perspective of United Kingdom mortgage choices.     

Hospitals: The Market for Health Care Facilities

Health care facilities include hospitals and nursing homes. Demand for beds and occupancy depends on income, prices and insurer restrictions. The supply of beds is limited by regulatory certificates of need. The implied equilibrium vacancy leads to a trade-off with rate increases. Rate increases establish an asset price for a hospital bed. If prices of health care rise faster than income and nonhealth prices, patients demand less bed availability and occupancy. Rising vacancy and rising prices occur, consistent with the empirical observations for U.S. health care facilities. For 1980–2001, the equilibrium vacancy rate for U.S. hospitals is between 27% and 36% depending on capacity adjustments, bed availability and price expectations. Equilibrium vacancy is near the actual rate after 2000, but that rate is 11 percentage points higher than in the early 1980s when the number of beds was nearly one-third higher. Usually rent regulation leads to excess demand. But in a general equilibrium model with income, relative prices, expectations, supply and capital markets, price regulation can coexist with excess supply.     

Current Wealth and Tenure Choice

This paper argues that a central implication of tenure transition models is that the timing of a household's initial switch to ownership is particularly dependent upon its current net worth. In contrast, permanent income, largely derived from human capital, is assumed to be the dominant component of the relevant household budget constraint in conventional tenure choice models. These contending propositions are tested using a Canadian micro database. Consistent with the tenure transition approach, current nonhuman wealth is found to have the primary budgetary role in tenure mode decisions of young households.     

融资约束抑或过度投资——中国上市企业投资—现金流敏感度的经验证据

本文以中国上市企业为分析样本,通过检验现金持有量对投资—现金流敏感度的影响,考察企业中的融资约束和代理冲突。结果显示,融资约束与过度投资导致企业投资支出与内部现金流密切相关。民营企业、大规模地方国有企业中存在过度投资,所持有的现金具有明显的壕沟效应、进一步提高投资—现金流敏感度。而中、小规模国有企业面临的融资约束比较突出,为了抵御外部融资约束,持有现金充当对冲工具、降低投资—现金流敏感度。     

An Investment Analysis and Decision Making Framework for Real Estate Development*

Recent research analyzing real estate investment decisionmaking has concentrated upon existing income properties. Projects planned for future development have been analyzed as though they were completed and generating rental income. Such analysis has not considered the impact of development period decisions upon operating cash flow and hence project value. This paper proposes a framework for investment analysis which accurately reflects the interrelatedness of the development and operating periods of the real estate development process. A stochastic Markov process is used to develop a model which treats the development and operating periods as an integrated system. The resulting model allows project investment decisions to be made on the basis of a minimum expected profitability index distribution and/or terminal value.     

R&D as an option on market introduction

Discounted cash flow methods for making R&D investment decisions cannot properly capture the option value in R&D. Since market and technology uncertainties change expectations about the viability of many new products, the value of projects is frequently adjusted during the R&D stages. Capturing the adjustment in expectations has an option value that may significantly differ from the Net Present Value of R&D projects. However, there are no historic time series for estimating the uncertainty of the value of R&D projects. As a result, the standard Black and Scholes model for financial option valuation needs to be adjusted. The aim of this paper is to report the application of a particular option pricing model for setting the budget of R&D projects. The option value of the model captures jumps or business shifts in market or technology conditions. The approach originates from applying current insight into the valuation of R&D projects to the field of multimedia research at Philips Corporate Research. This way, the gap between real option theory and R&D practice is further diminished.     

Tax Reform and Organizational Forms for Holding Investment Real Estate: Corporation vs. Partnership

Following the ERTA of 1981, partnership ownership of real estate dominated corporate ownership. This study concludes that the Tax Reform Act of 1986 provides incentive for holding real estate investments that produce sizable tax losses and/or that are eligible for large tax credits in corporate rather than partnership form. Perpetuity cash flow models are employed initially to identify key tax and cash flow variables favorable to each organizational form. The perpetuity assumption is then relaxed to consider a more representative real estate investment. A sensitivity analysis examines the extent to which the base case results are dependent on the assumed values of selected model parameters.     

Minimum Cash Wages,Tipped Restaurant Workers,and Poverty

This is the first study to examine the effect of increases in the tipped minimum cash wage—the wage employers must pay to tipped employees—on poverty. Using March Current Population Survey data (1988–2014), we find that tipped minimum cash wage increases are associated with declines in the risk of a tipped restaurant worker living in a poor family (elasticities around –0.2). However, we find little evidence of poverty‐alleviating effects when using the household rather than the family as the sharing unit. This result is consistent with evidence that a substantial share of tipped workers who live in a poor family live in a nonpoor household with persons unrelated by blood, marriage, or adoption who contribute to the household's income. Furthermore, we find that tipped minimum cash wage hikes are associated with increases in the risk of a younger, less‐educated individual living in a poor family or household. Adverse labor demand effects that redistribute income among low‐skilled individuals drive these results. We conclude that raising the tipped minimum cash wage is a poorly targeted policy to deliver income to poor restaurant workers.     

On The Park-Thuesen Index and the Value of Earlier Uncertainty Resolution

In practice, engineering economic analysis involves uncertainty about future cash flows. To deal quantitatively with imprecision or uncertainty, fuzzy set theory is primarily concerned with vagueness in human thoughts and perceptions. As an alternative to conventional cash flow models where cash flows are defined as either crisp numbers or risky probability distributions, we propose an engineering economic decision model in which the uncertain cash flows and discount rates are specified as triangular fuzzy numbers. The present worth formulation of this fuzzy cash flow model is derived. The result of the present worth is also a fuzzy number with nonlinear membership function. The present worth can be approximated by a triangular fuzzy number. Deviation between exact present worth and its approximate form is examined. Finally, the fuzzy project selection is performed by applying different dominance rules. To demonstrate the application of the fuzzy present worth function, a comprehensive numerical example is presented.     

Taxes and the User Cost of Capital for Owner-Occupied Housing

Owner-occupied housing is said to be favored in the tax code because the return on owner's equity is not taxed and mortgage interest and property taxes can be deducted in the computation of one's income tax base. The special tax treatment reduces the user cost of capital for owner-occupied housing.
The issue treated in this paper is the measurement of the tax rate to be employed in the user cost calculations. It is argued that different tax rates are appropriate for the tenure choice and quantity-demanded decisions, and that these values depend on the detailed tax position of the household and the method of finance. Average 1977 tax rates for household in different income ranges are calculated using the NBER TAXSIM microeconomic data file on individual tax returns.     

The Dynamics of Homeownership: Eliminating the Gap Between African American and White Households

This article uses a sample of young renters from the Panel Study of Income Dynamics and a continuous‐time econometric model to explore not only the initial tenure transition to first‐time homeownership, but also subsequent possible tenure transitions to a second owned home, back to rental tenure and, indirectly, to a second owned home from rental tenure. Once estimated, the predicted probabilities of these transitions are used to calculate the probability of homeownership at various times for households in the sample. These estimates are done separately for African Americans and whites for two different 11‐year time intervals, 1987–1997 and 1993–2003. A primary result is that if African American education, income, net wealth and savings behavior could be brought in line with that of white households the majority of the racial gap in homeownership could be eliminated in either time period.     

Mobility, Residential Location and the American Dream: The Intrametropolitan Geography of Minority Homeownership

This article applies data from Washington, DC, Chicago and Los Angeles to estimate three-level nested multinomial logit models of household mobility, residential location and homeownership tenure choice. Model simulation indicates that shocks to income can significantly elevate the homeownership attainment of minority households; however, their urban settlement and homeownership patterns remain substantially more concentrated than those of whites. Simulated equilibration of black economic status with that of whites results in an approximate doubling of homeownership rates among black movers to central city areas. In contrast, homeownership rates among black movers to suburban and outlying areas lag far behind those of whites.     

ALTERNATIVE MODELS FOR FINDING CUMULATIVE PAID CAPITAL AND REMAINING BALANCE FOR A UNIFORM SERIES OF CASH FLOWS

The purpose of this paper is to propose models for finding the cumulative amount of paid capital up to a certain point in time for a discrete uniform series of cash flows, and also the unpaid capital amount of a similar séries of cash flows. An exponential model for finding the present worth for a séries of cash flows that is increasing exponentially is used to find the sum of paid capital. The second model that is used for finding the unpaid capital is developed based on the first model. The major advantages of the first model over the existing models is that it provides a direct tool for finding the cumulative amount of paid capital or unrecovered investment. The proposed models are easy to use since they are independent of finding the amount of the cash flow A. The cumulative paid interest up to a certain point in time can be found by subtracting the total repaid capital from the amount of total paid money up to that point.     

A NOTE ON BIAS IN CAPITAL BUDGETING INTRODUCED BY STOCHASTIC LIFE

This note extends work by Young and Contreras and by Rosenthal on the present worth of cash flows under uncertain timing. In capital budgeting analysis, the use of the expected life of a project instead of the life distribution of the project biases the estimate of its expected net present value. In most situations the bias results in an overestimate of the expected net present value of the project. When the exact life distribution is unknown, the bias can be approximated by Taylor series expansion. The sensitivity of the bias to the discount rate, to cash flow patterns, and to income taxes is also investigated.     

A review of: “PROJECT MANAGEMENT IN MANUFACTURING AND HIGH TECHNOLOGY OPERATIONS” by Adedeji B. Badiru,John Wiley and Sons,Inc., New York, 1988, xxii + 319 pp., ISBN 0471-62892-1, List $44.95.

The conventional approach to considering working capital cash flows in capital budgeting is to omit them or include some ad hoc figures at the initiation and termination of the project. The authors argue for an endogenous system of estimating relevant working capital cash flows on a periodic basis. Otherwise, the present value of working capital cash flows is biased against the project's acceptance. Examples of calculating working capital cash flows as related to changes in annual sales are presented for three time patterns of sales and contrasted to the conventional method. An empirical study of the linear relationship of net working capital and sales revenue of 770 companies is reported, and an alternative cash flow model is offered thai includes working capilal cash flows.