Alternative housing concepts and the benefits of public housing programs

Almost all previous studies analyzing the benefits and consumption effects of public housing programs have used aggregation theorems to construct composite goods “housing” and “all other goods.” In this paper we show that, if it is more realistically assumed that households have preferences defined on housing characteristics, benefits estimated using the composite approach are upward biased. Some empirical work suggests that the bias is large. We therefore strongly advise to take into account the composition of the bundle of housing attributes provided under a public housing program when evaluating the program's economic effects.     

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.     

Selecting subsidy strategies for housing allowance programs

The market effects of alternative housing payment formulas are analyzed and compared for a metropolitan housing market using measures of efficiency and distributional equity. The effects of “earmarking” allowance payments are considered. Estimated market effects are based on a model of housing market behavior over a 10-year period. The results differ significantly from what one might anticipate based on demand analyses of individual behavior. “Housing gap” formulas perform better than percent-of-rent formulas. Certain characteristics of the housing market together with particular income redistribution effects of the allowances appear to explain the market behavior.     

Fear of crime and housing prices: Household reactions to sex offender registries

Megan's Law requires public dissemination of information from sex offender registries. Opponents to this controversial law have questioned whether households misinterpret or even use this information. One concern was that the information might simply induce a “fear of crime.” This study finds evidence for both use and misinterpretation of the publicly available information on sex offenders. Using a unique dataset that tracks sex offenders in Hillsborough County, Florida, the results indicate that after a sex offender moves into a neighborhood, nearby housing prices fall by 2.3% ($3500 on average). However, once a sex offender moves out of a neighborhood, housing prices appear to immediately rebound. Surprisingly, these price impacts do not appear to differ in areas near high risk offenders labeled as “predators.”     

Cash in Your Face: The Cost of Racial and Ethnic Discrimination in Housing

According to recent evidence, racial and ethnic discrimination in housing continues to be widespread. This paper estimates the cost this discrimination imposes on black and Hispanic households. Building on the work of4, the paper develops a housing search model and measures the cost of discrimination by its impact on the gain a household can achieve through housing search. The cost of discrimination is then calculated for a representative sample of households. The punchline: Black and Hispanic households pay a discrimination “tax” of almost $4,000, on average, every time they search for a house to buy.     

Housing tenure transitions of older households: Life cycle, demographic, and familial factors

Understanding the housing choices of the older households will grow in importance as the baby boom generation starts to retire. This analysis utilizes a rich longitudinal data set (PSID) to provide insight into the reasons why older households make housing transitions. Because of the richness of the data, this analysis is able to control for life transitions, a household's income and wealth, and connection to one's children in predicting when a homeowner makes a housing transition. The results demonstrate that age is not related directly to housing tenure choice for older households. Instead, having lower health status and being a single head of household is the important predictor of housing tenure transitions. At the same time, very few life changing events immediately lead a homeowner to become a renter, although they do influence the decision to downsize or consumer home equity. Finally, living next to one's children lowers the probability of becoming a renter or downsizing, and having richer children increases the probability of downsizing and thereby consuming one's housing wealth.     

Effects of residential relocation on household and commuting expenditures in Shanghai, China

Over the past three decades, China's cities have undergone massive spatial restructuring in the wake of market reforms and economic growth. One consequence has been a rapid migration of urban residents to the periphery. Some movers have been forced out either by rising urban rents or government reclamation of their residences. Others have relocated willingly to modernized housing or for other lifestyle reasons. This article examines the effects of relocation to the urban edge on household well-being. It explores the factors underlying changes in housing and transportation costs as households move to the periphery. The research also examines whether those who moved involuntarily are affected differently from those who moved by choice. Results show that, relative to those who moved by choice, involuntary movers are disproportionately and adversely affected in terms of job accessibility, commute time, housing consumption and disposable income. The findings also show that, compared with higher-income households, lower-income groups are disproportionately affected in relation to housing costs, accessibility losses, disposable income and household worker composition. These results indicate that relocation compensation for involuntarily relocated households should be expanded to include more than just housing value: it should encompass urban location changes, household needs and relocation costs.     

Differential response to change: The case of home purchase

Evidence is provided in support of the hypothesis that younger households respond more rapidly than older households to a transformation in the environment. Differential response is expected since younger households have more time to amortize any investment undertaken in response to some change in the world, and they have less need to disinvest specific human capital attuned to the old environment. The application presented is the response by young and old households to changes in the environment surrounding housing markets.     

List price and sales prices of residential properties during booms and busts

This paper investigates the relationship between the list and sale price of residential properties over the housing cycle. In down or normal markets the list price generally exceeds the sales price; however, when the housing market is strong, homes sell for more than their list price. This observation is not consistent with the assumptions made in the standard model of home sellers’ search behavior. We consider alternative models. In one, sellers set list prices based on their expectations of future changes in sales prices and the arrival rate of buyers; however, demand shocks occur. This model partially explains our data from the Belfast, U.K. housing market, but it fails to predict the list to sales price ratio during a sustained housing boom. We next describe a model where sellers’ endogenously select their search mechanism depending on the strength of the housing market. We find support for the conjecture that sellers switch to an auction-like model during housing booms. There also is evidence that during a downturn in the market, sellers’ list prices are sticky.     

Skill-biased technological change and homeownership

In the United States, the residential housing market went through important changes over the period from the 1970s to the mid-1990s. Although the aggregate homeownership rate was relatively stable during that period, the distribution of homeownership rates by age changed in remarkable ways. While younger households saw substantial declines in homeownership rates, the opposite happened for older households. In this paper, we argue that the skill-biased technological change (SBTC) that began during the 1970s has been an important factor behind the observed change in the distribution of homeownership rates by age. We build a life cycle model in which skills are accumulated on-the-job through experience: learning by doing. Early in life, households have lower levels of skills and therefore lower earnings. SBTC increases the returns to skill, widening the wage gap between young and old ages. As a consequence, it takes more time for young households to become homeowners given frictions in financial markets (e.g. downpayment requirements) and housing markets (e.g. large and indivisible houses), in line with consumption smoothing behavior. On the other hand, older households that could not afford a house before may now become homeowners, given higher returns to skill. Our analysis confirms this conjecture, namely, that SBTC shifts the distribution of homeownership from the young to the old.     

Charitable giving expenditures and the faith factor

Using a permanent income hypothesis approach and an income-giving status interaction effect, a double hurdle model provides evidence of significant differences from the impact of household income and various household characteristics on both a household's likelihood of giving and its level of giving to religion, charity, education, others outside the household, and politics. An analysis of resulting income elasticity estimates revealed that households consider religious giving a necessity good at all levels of income, while other categories of giving are generally found to be luxury goods. Further, those who gave to religion were found to give more to education and charity then those not giving to religion, and higher education households were more likely to give to religion than households with less education. This analysis suggests that there may be more to religious giving behavior than has been assumed in prior studies and underscores the need for further research into the motivation for religious giving. Specifically, these findings point to an enduring, internal motivation for giving rather than an external, “What do I get for what I give,” motive.     

HOUSING DEMAND IN A TRANSITIONAL MARKET: MOSCOW

Before Russia began its transition toward the market, its housing sector was perhaps the most controlled in the world. This paper employs data from a 1994 survey of Moscow households to estimate housing demand functions to evaluate whether behavior is consistent with market principles. Statistically significant, robust income elasticities are found for families who have engaged in recent market housing transfers. Insignificant results are found for those renting state-owned units. Families who have engaged in market housing transfers are smaller, younger and wealthier than other families in Moscow and end up living in less crowded conditions than state renters. The use of per capita living space as a proxy for market value, as has been done in previous studies of housing in Russia and the Soviet Union, is also evaluated.     

Housing equity,residential mobility and commuting

Highly productive economies require a flexible labor force with workers that move in accordance with the changing demand for goods and services. In times with falling housing prices, the mobility of home owning workers may be hampered by a lock-in effect of low or even negative housing equity. This paper explores the effect of housing equity on both the residential mobility and the commuting pattern of homeowners. We merge administrative registers for the Danish population and properties and get highly reliable micro data for our analysis. We find that low and negative housing equity substantially reduces residential mobility among homeowners. The negative effect of locked-in low equity families on labor market mobility may be mitigated by commuting. However, our results show that family heads in low or negative equity homes are not found to commute more than households with higher housing equity, but also that a considerable fraction of home owning family heads commute. The analysis of the joint decision of homeowners to commute or move shows that the option of moving, as an alternative to not moving and not commuting, is chosen by five to six percent of homeowners with low housing equity, while the option of not moving but commuting is chosen by 60%.     

On the welfare cost of rare housing disasters

This paper examines the welfare cost of rare housing disasters characterized by large drops in house prices. I construct an OLG general equilibrium model with recursive preferences and housing disaster shocks. The likelihood and magnitude of housing disasters are inferred from historical housing market experiences in the OECD. The model shows that despite the rarity of housing disasters, Canadian households would willingly give up 6 percent of their non-housing consumption each year to eliminate the housing disaster risk. The welfare evaluation of this risk, however, varies considerably across age groups. The risk translates into a welfare loss of as much as 16 percent of annual non-housing consumption for the old, but a welfare gain of 2 percent for the young. This asymmetry stems from the fact that, compared to the old, younger households suffer less from house price declines in disaster periods, due to smaller holdings of housing assets, and benefit from lower house prices in normal periods, due to the negative price effect of disaster risk.     

Determinants of the rate of home ownership of black relative to white households

This paper investigates the reasons for the lower rate of home ownership of black households compared to white households in urban areas. A model of the demand for owner-occupancy by blacks relative to the demand by whites is formulated and econometrically estimated.The principal finding is that a percentage increase in the mean level of black household incomes produces a larger increase in the relative rate of blacks' home ownership than an equivalent reduction in the price of owner-occupied housing which they face. Although significant effects of within market discrimination against blacks as reflected in higher prices of owner-occupied housing to blacks are found, attempts to associate this price premium with measures of residential segregation were unsuccessful.     

Consumption, house prices, and collateral constraints: a structural econometric analysis

If borrowing capacity of indebted households is tied to the value of their home, house prices should enter a correctly specified aggregate Euler equation for consumption. I develop a simple two-agent, dynamic general equilibrium model in which home (collateral) values affect debt capacity and consumption possibilities for a fraction of the households. I then derive and estimate an aggregate consumption Euler equation, and estimate its structural parameters. The results provide robust support for housing prices as a driving force of consumption fluctuations.     

A paradigm for location and multidimensional problems in planning

Several theories, concepts, methods, or alternatively, “paradigms” have been suggested for the explanation and prediction of the location behavior of urban households. Increasingly, hwoever, “behavioral” approaches to the explanation of the dimensions of “choice” and/or exploration of alternative hypotheses have been cumbersome in the “mechanistic” paradigms of the social system and its related subsystems.An alternative paradigm of Analytic Hierarchy Process (AHP) is proposed to explore alternative structural specification hypotheses (sequential versus simultaneous) on the grouping and changing relative importance of “instrumental” and “non-instrumental” factors affecting location decision-making. AHP estimates of the “locational shares” of an urban (corridor) zonal population provide a paradigmatic basis for behavioral, vis-a-vis environmental, explanation of location decision-processes in a methodologically efficient, robust and theoretically inclusive framework of hierarchy systems.This paradigm is proposed for locational analysis requiring an effective integration of multilevel, environmental (contextual) and behavioral measures of relative importance, with limited data, and, for multidimensional problems in planning and policy-making, formidably requiring the integration of positive with normative analysis of systems.     

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.     

LAND MARKETS AND THE EFFECT OF REGULATION ON FORMAL-SECTOR DEVELOPMENT IN URBAN INDONESIA

Until recently, urban land and housing markets in Indonesia seemed to function well. Informal-sector development provided low-income housing affordably. Through government programs, formal-sector developers could build housing for all but the poor. Since 1989, however, daily conversation pictures land speculation as rampant and formal-sector housing as rising beyond the means of the middle class. Newspapers carry stories of conflicts between small landowners and large developers with government officials in between. This article investigates this situation by addressing two related questions: are urban land prices rising “too fast?”; how do land regulations and development practices affect costs, and who pays these costs? The article includes quantitative estimates of urban land prices, changes in urban land supply, movement of land through the permitting process, and the effect of development regulations on costs. Data come from a literature survey and interviews of some of the largest formal-sector developers in Indonesia. A principal finding concerns a development regulation called a “location permit” and the “social function” of land in Indonesian law. Although helpful as a means of assembling land in Indonesia's highly fragmented land markets, location permits allow formal-sector developers to hold land off the market and pay low prices to small landowners. Ultimately, the “social function” of land under Indonesian law holds down the price formal-sector developers pay for land, but not at the price at which they sell their product. The article concludes by proposing reforms to the regulatory process.