The Accuracy of Owner-Provided House Values: The 1978–1991 American Housing Survey

The American Housing Survey (AHS) includes the owner's valuation of the house as a measure of the house's value. If owner-stated values are accurate, the AHS (as well as other survey instruments) can be used by researchers studying a variety of topics. In this study we use the metropolitan version of the AHS for three cities over fourteen years to compare owners' valuations with sales prices of houses that sold in the twelve months prior to an interview. We find that, on average, recent buyers report house values that are 8.4% higher than the stated sales prices. Further analysis indicates that these recent buyers, when compared with owners with longer tenure, overvalue their houses by 3.3%, on average. Thus, we find that the average owner overvalues his house by 5.1%. Also, differences between sales prices and owners' valuations are not related to particular characteristics of the house, occupants (other than length of tenure), or neighborhood. Thus, the use of the owners' valuations will result in accurate estimates of house price indexes and will provide reliable estimates of the prices of house and neighborhood characteristics.     

Effects of Macroeconomic Uncertainty and Labor Demand Shocks on the Housing Market

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.     

The Economics of Style: Measuring the Price Effect of Neo‐Traditional Architecture in Housing

Vintage effects have received considerable attention from economists in the context of house prices. Although strongly related, the impact of architectural building styles on prices has not been studied yet. Using a cross‐sectional hedonic price analysis including building styles of recently developed homes in the Netherlands we find a significant price premium for housing with neo‐traditional architecture. Extensive intervention by local authorities on the supply side of the housing market seems the most probable explanation of this effect. The decreasing price premium over time reflects the impact of supply restrictions on price, but also indicates that style does matter.     

Big‐Box Stores and Urban Land Prices: Friend or Foe?

This study examined the effect of a new Walmart store on nearby U.S. urban land prices and found that, within one quarter mile of a new Walmart store locale, land prices increased by almost 39% over the four‐year development time period. Supercenters and commercial land sales were instrumental in driving the positive price effects. Robustness tests found a positive land price effect with other big‐box stores, suggesting that the land price effect was not limited to Walmart stores, but in fact, was a big‐box store effect.     

Discount Brokerage in Residential Real Estate Markets

Transaction costs are thought to affect asset prices and market liquidity, but the direction and magnitude of these effects continue to be the subject of debate. In the single‐family residential market, discount brokers offer to list a house for a lower price and thus reduce the transaction costs associated with obtaining a match. In this article we obtain empirical estimates of the price and liquidity impact of a seller selecting a discount broker to market a single‐family residential property. The unique data set allows for the identification of residential properties that were listed by a discount brokerage firm. The empirical results confirm the predictions of our theoretical model. Using a sample of 318,221 listings and 243,625 sales, we find that houses listed by discount brokers sell at prices similar to non‐discount brokerage listings, but are less likely to sell, and when they do sell, take approximately three days longer to sell. The results indicate that lower transaction costs do not impact housing prices in this market, but that they are related to asset liquidity.     

Are Rising College Premiums Capitalized into House Prices? Evidence from China

Many areas in China experienced steeply rising house prices beginning in 2003. We test whether a change in local residency requirements may have played a role in driving up house prices in some places by tying access to Chinese universities to local homeownership status in the presence of a rising college premium. We generate a novel dataset that combines China housing market and neighborhood data with household and university admission data. We find evidence of capitalization effects and a sizable increase in the likelihood of homeownership postpolicy change in places with the greatest preferential access to China's elite universities.     

Housing Density and the Effect of Proximity to Public Open Space in Aberdeen, Scotland

We consider whether public recreational open space is a substitute for private open space by testing whether price effects from proximity to an urban park are increasing in housing density. Aberdeen, Scotland features three owner-occupied residential property types: detached housing, nondetached housing and flats. We examine property sales within 800 m of five city parks. We find flat prices increase with additional proximity to parks, but there are generally no price effects from park proximity for lower density housing types. The results suggest that open space policy must consider the scale and density of surrounding urban development.     

Why Are Foreclosures Contagious?

This article investigates the mechanism by which foreclosed properties depress neighboring property prices. Using a novel dataset on housing capital expenditure, I verify as accurate the claim of disinvestment theory made in earlier studies. When capital expenditure investment, neighborhood price trends, number of Multiple Listing Service listings and neighborhood fixed effects are controlled for, the negative effect on property prices is significant from nearby foreclosures, real estate owned (REO) listings and REO sales, but not from default and delinquent properties. The effect is larger in a depressed market than in an appreciating market. I argue that the most plausible explanation for these results is that a foreclosure discount drives down the reference prices for nearby properties and depresses neighborhood values. This discount information is revealed to the public through foreclosures, REO listings and REO sales.     

Short Sales and Fundamental Value: Explaining the REIT Premium to NAV

This study explores the role of short sale constraints in explaining the variation in premiums to Net Asset Value (NAV) in REIT pricing. We use proprietary information on short sales between June 2006 and September 2008 to examine how short sales and short sale constraints affect the variation in monthly REIT NAV premiums using panel vector autoregression models. We find that variation in short sale activity across individual REITs can account for at least one‐third of the variation in NAV premiums. Short sale constraints tend to be binding when there is strong demand and limited supply of shares to short. Excess demand leads to overvaluation and the correction of the overvaluation explains the under‐performance of premium REITs.     

Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market

Bargaining is common in markets for heterogeneous goods and differences in bargaining power between buyer and seller affect the negotiated transaction price. Previous research has found systematic evidence in the housing markets that weak buyers pay higher prices and weak sellers receive lower prices for their homes. Earlier work has modeled the bargaining effect as a parallel shift in the hedonic function, implicitly assuming that attribute shadow prices were unaffected by the bargaining process. In this paper, we use a sample of home sales where the seller's bargaining power is weakened by the fact that the home is vacant at the time of sale to test whether the effect of bargaining is best captured by a shift in the hedonic constant or whether the attribute shadow prices vary as well. The question is significant for property valuation where estimation of the marginal value of an attribute is commonly used to adjust comparable sales data. We find strong confirmation that bargaining power influences the negotiated price. We also find evidence that bargaining power alters attribute prices, although we do not find a consistent pattern across markets.     

Financing Residential Development with Special Districts

This paper empirically examines the extent to which the property tax liability created by financing residential infrastructure using special district bonds is capitalized in house prices. We compare house prices for single‐family detached homes built within development districts to similar properties located outside development districts. Our hedonic specification includes the usual housing characteristics and controls for the influence of spatial attributes using Census Block Group “neighborhood” fixed effects. The preferred empirical specification restricts the data to neighborhoods that have numerous sales of recently constructed single‐family detached homes located both within and outside development districts. The empirical results indicate that house prices for homes located within development districts are lower than house prices for similar homes located outside of development districts, but the amount of property tax capitalization is significantly less than full. Results depend on our Generalized Methods of Moments estimator, which instruments property tax rates using the characteristics of development districts. We identify valid instruments by restricting transactions to properties located in rapidly growing suburban developments.     

Catch Animal Spirits in Auction: Evidence from New Zealand Property Market

Following the animal spirits theory proposed by Akerlof and Shiller, this article contributes to behavior economics by investigating the possibility of using auction sales data to capture evidence of irrational exuberance in the housing market. Using the monthly percentages of residential property auction sales for Auckland, Wellington and Christchurch regions in New Zealand from 2006 to 2015, and the exuberance testing method proposed by Phillips, Shi and Yu, we find that animal spirits have been developing in the Auckland housing market since 2013, but not in other regions. When compared to the results based on price‐to‐rent ratios, auction sales provide more meaningful results for identifying market‐wide irrational exuberance at an early stage. The causality test on price‐to‐rent ratios and auction sales volume shows that asset prices and animal spirits influence each other in the short run. In the long run, prices have significant effect on animal spirits, but not vice versa.     

Valuing New Urbanism: The Case of Kentlands

This study assesses the impact of new urbanism on single-family home prices. Specifically, we use Duany and Plater-Zyberk's traditional neighborhood development (TND) of Kentlands and surrounding conventional subdivisions to estimate the premium, if any, that single-family homeowners are willing to pay to reside in a community with new urbanist features. Using data on 2,061 single-family home transactions and several hedonic price models, the empirical evidence reveals that consumers are willing to pay a premium to locate in Kentlands.     

Immigration,Capital Flows and Housing Prices

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%.     

Hedonic Amenity Valuation and Housing Renovations

Hedonic and repeat sales estimators are commonly used to value such important urban amenities as schools, environmental quality and access to transit. Given that property data often omits information on quality differences between same‐aged homes as well as changes in structural attributes over time, researchers must assume that property renovations are uncorrelated with neighborhood amenities. We formally test if this assumption is valid by incorporating detailed data on renovations in Charlotte, North Carolina. We begin by testing how the inclusion of minor and major home improvements influences hedonic and repeat sales indices. Results find limited bias in hedonic indices and that renovated properties are no more likely to be sold than nonrenovated properties. Using the introduction of Charlotte's light rail‐transit system in 2000, we estimate a positive bias of between 1.6% and 19.9% on the capitalized benefits of access to light rail due to omitted information on renovations. Our results show that a number of common data cleaning techniques used to address missing information on structural improvements may worsen this bias.     

Auction versus Negotiated Sale: Evidence from Real Estate Sales

We offer a theoretical and empirical comparison of auctions and negotiated sales. We first build a simple model to show that auctions generate a higher relative price than negotiated sales when demand for the asset is strong, when the asset is more homogeneous and when the asset attracts buyers with higher valuations. Using data from property sales in Singapore, we find support for our theoretical predictions. In addition, we find that auctions do not necessarily generate a higher price premium for foreclosed properties than for nonforeclosed properties.     

Do the urban poor face higher food prices? Evidence from Vietnam

Whether there is a poverty penalty, in terms of food prices, is unsettled in the literature after more than four decades of study. Unit values from household surveys suggest that prices vary with income while outlet surveys typically find food prices varying with store type but not with neighborhood income. Most outlet surveys are from rich countries, with just one spatially limited study from a developing country. In this paper we use especially collected food price data from metropolitan areas of Vietnam to test whether the urban poor face higher food prices. Food prices in low-income neighborhoods are 1% lower, on average, than in other neighborhoods. Unit values give a different answer to the question of whether the poor face higher prices and are not suited to answer such a question.     

Housing Regulation,Externalities and Residential Property Prices

This article examines the effects of quantity restrictions on residential property prices in the presence of neighborhood externalities. A Brigham Young University policy limiting students’ location choices provides a natural experiment for studying the externality and quantity restriction effects on property values. A flexible hedonic model is used to control for nonstudent population spatial sorting by type. The estimates show significant positive quantity restriction and student agglomeration effects on student housing prices. There are also significant differences in the negative student externality across nonstudent neighborhoods, with the quantity restriction reinforcing (offsetting) the student price premium (discount) at the boundary.     

Strip Clubs, “Secondary Effects” and Residential Property Prices

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.”     

Graduated Flood Risks and Property Prices in Galveston County

Our hedonic property analysis approach in Galveston County, Texas aims at estimating the impacts of flood risks and water‐related amenities in a more systematic way. First, we interact distance to the nearest coastline and flood risk in order to account for these impacts acting together on housing sales prices in our coastal community. Second, we use more granular flood risk measure in the analysis compared to the existing literature. Results show that the hedonic price effect is dependent upon the distance to the nearest coastline, and as expected the distance effect varies by flood risk type. We find that in this coastal housing market properties located in the highest risk flood area, for up to nearly a quarter mile from the nearest coastline, actually command a price premium. A recent movement toward risk‐based flood insurance premiums in the United States was deeply opposed by the real estate sector for fear of causing property values to steeply decline. This analysis sheds some further light on this depressed property value assertion highlighting its sensitivity to distance to the water.