Taxation of Residential Property in New York City: The Sources of Differential Treatment

Intrajurisdictional variations in the effective residential property tax are analyzed for New York City. Significant variation is observed by type of structure, by borough, by income quartiles, and over time. Cross-sectional regression equations indicate that effective rates tend to vary inversely with income and positively with the proportion of poverty households and building size. Market values, on the other hand, tend to vary inversely with poverty households and building age, and positively with income and building size. Over time, effective tax rates show a strong inverse relationship with the rate of inflation.     

Risk Segmentation of American Homes: Evidence from Denver

This article empirically examines the segmentation of house price risk across 99 ZIP‐code‐delineated neighborhoods in metropolitan Denver. The house price risk in each neighborhood is measured with the temporal variation of quarterly appreciation rates of the neighborhood house price index over the 2002–2007 period. Cross‐sectional regressions of neighborhood house price risk on the median household income and the percentage of population in poverty from the 2000 census data for the same neighborhoods provide strong evidence that the house price risk is significantly higher in low‐income/poor neighborhoods. Subperiod analyses further indicate that the risk segmentation exists in both a booming period (pre 2005:2) and a busting period (post 2005:3). The results indicate that homeownership can be a much riskier investment for low‐income/poor households.     

The Role of Real Estate in the Portfolio Allocation Process

This study explores the role of direct real estate investment in a portfolio context incorporating the real estate imperfections of indivisible assets and no short sales. Mean-variance efficient portfolios are calculated using Treasury-bills, bond and equity indices together with cash flows and appraised values from a set of twenty-two properties having an aggregate appraised value of $336 million. Real estate diversification benefits are shown to be the greatest with smaller properties and are most advantageous at higher target levels of return. The study suggests that a 9% allocation to real estate is optimal, rather than the 20% figure suggested in other studies.     

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.     

The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision

Using a unique data set of more than 14,000 senior homeowners in the United States, this study compares self‐assessed home values to arm's length contemporaneous appraisals. In a sample of seniors who received counseling for a reverse mortgage, the absolute value of the assessment error averages 18.9% of appraised value and it is biased upwards by 13.4%. When adjusted to reflect the general population of seniors, the size and bias of the average error fall to 16.1% and 4.2%. Both the bias and the size of the error tend to be lower for households with higher income and credit scores but it is greater for black households. In our sample period of 2009–2011, house prices were falling. The greater the rate of price reduction, the greater is the upward bias and size of the assessment error. When seniors who applied for a reverse mortgage learn that they overvalued their home, their probability of closing the loan falls.     

Corporate Growth and Profitability

This paper argues that current period corporate growth rates reflect changes in current expectations about the long run profitability of a firm. This means that growth rates are likely to vary randomly over time. Using data from 271 large, quoted UK firms over the period 1976–1982, we report the existence of a positive, statistically significant and robust correlation between current period growth rates and a natural measure of changes in current expectations about long run profitability, namely changes in the stock market valuation of the firm. Nevertheless, we find that variations in corporate growth rates are difficult to predict.     

Trade Openness and Labor Force Participation in Africa: The Role of Political Institutions*

Trade liberalization is usually expected to lead to greater economic activity including higher labor force participation rates. Using data from forty‐eight Sub‐Saharan African countries over the period 1985–2012, we explore the impact of trade openness on labor force participation rates (LFPR), and examine how political institutions such as democracy, political rights, and civil liberties can play a role in driving this relationship in the above group of low‐income countries. The estimated marginal impact of openness on LFPR shows that LFPR is increasing with the level of institutional quality. In particular, political institutions are critical in enhancing the benefit from openness. Our conclusions are similar for male and female participation rates although the magnitudes of the former are higher, thus confirming that improving institutions can generate greater labor market benefits from trade in poor countries.     

Determinants of Cross-Sectional Variation in Discount Rates, Growth Rates and Exit Cap Rates

This study investigates the determinants of key input variables in valuers' discounted cash flow models used for estimating market values for offices. Data from 599 valuations in 2000 from Stockholm, Gothenburg and Malmö are used to explain variation in discount rates, expected growth rates in net operating income and exit cap rates. Our ability to explain the relatively wide variation in appraisal assumptions with plausible covariates generates confidence in the appraisal process. This has important implications because most value and returns indices of commercial real estate worldwide are appraisal based.     

The Performance of Commercial Mortgages

This study examines the return characteristics of a large, well-diversified commercial mortgage portfolio. Mortgage-specific cash-flow histories are constructed for 2,480 loans originated over the period 1974 through 1990, and a contingent-claims approach to pricing risky debt is used to estimate inter-temporal market values. Quarterly holding-period returns are compared across selected mortgage groups and to alternate asset classes. Our findings suggest that both mortgage returns and volatility of return are comparable to those of other forms of fixed-income assets over the study period. Implied property price volatility is found to average 17%, a result significantly higher than reported in earlier studies. While mortgage returns are found to vary by property type and region of origin, cross correlation of returns is found to be high, illustrating the systematic effect of interest rates on the performance of commercial mortgages over the period 1974 through 1990. However, an increase in credit risk in the latter years of the study suggests that diversification may be a worthwhile objective for holders of these assets. We do not find evidence to suggest that abnormal returns were earned on commercial mortgage portfolios over the study period.     

U.S. Office Market Values During the Past Decade: How Distorted Have Appraisals Been?

The leading time series of real estate returns is the Russell-NCREIF (RN) Property Index. The RN series tracks returns, cash flow plus appraised capital gains, for multiple property types. To evaluate the accuracy of the capital-gains component of the office-market return series, this paper constructs two benchmark measures for the present value of projectable office-market cash flows from 1982 to 1991 and compares these with a real value series based on the RN capital-gain component. The RN-based series runs 30% above the highest of the benchmarks throughout the 1986–1989 period. While this overstatement is consistent with the development of a price bubble, failure of the bubble to burst until 1990–1991 is implausible. Real estate experts recognized overvaluation in assessments as early as the spring of 1986.
The RN Office-Market Index was slow to register price declines when the markets first weakened and then overstated the rate of decline once the market began to bottom out. This pattern likely reflects incentives for appraisers to smooth potentially temporary price volatility and for investment managers to maintain appraised values in declining markets. It traces as well as to systematic differences in the character and condition of the properties that lend to trade at different stages of the real estate cycle. These incentives and differences provide reason to believe that other RN indexes were similarly distorted.     

Housing Costs and the Elderly

Estimates are made of changes in average housing costs and average family incomes for non-moving elderly homeowners and renters over the period 1972–80. Findings suggest that: rental costs are higher in each time period than are homeownership costs; evidence of serious deterioration in affordability of housing is weak, when looking at aggregate price/income ratios; and it is clear that elderly renters are more seriously disadvantaged in housing affordability than are elderly homeowners at every time period.     

Global value chains,large-scale farming,and poverty: Long-term effects in Senegal

This paper presents panel data evidence on the impact of expansion of global value chains and large-scale export-oriented farms in developing countries over almost a decade. We estimate the income effects of wage employment on large-scale farms in the horticultural export sector in Senegal, using data from two survey rounds covering a seven-years period of rapid expansion of the sector. We estimate average income effects as well as heterogeneous income effects, using fixed effects and quantile fixed effects regressions. We find that poverty and inequality reduced much faster in the research area than elsewhere in Senegal. Employment in the horticultural export sector is associated with higher household income and the income effect is strongest for the poorest households. Expansion of the horticultural export sector in Senegal has been particularly pro-poor through creating employment that is accessible and creates substantial income gains for the poorest half of the rural population. These pro-poor employment effects contrast with insights in the literature on increased inequality from rural wage employment.     

Does the Life Course Savings Scheme Have the Potential to Improve Work–Life Balance?

To improve individuals' work–life balance, trade unions, employers' organizations, governments and the European Commission currently promote a life course perspective in activating labour market policies. In 2006, the Life Course Savings Scheme (Levensloopregeling) was introduced in the Netherlands, which aims to increase labour participation and to improve the work–life balance over the life course. What can we learn from the Dutch case? In 2006, actual participation in the scheme was with 6% much lower than expected. Participation rates were higher among males, full timers, older employees, the higher‐income groups and persons with a partner. However, our multivariate analyses of data for over 500,000 civil servants show that the higher participation rates of males, full timers and older employees are related to the higher earnings of these groups, and that after control for earnings, participation is higher among females, part timers and the young. This indicates that the scheme has a potential to contribute to the work–life balance over the life‐cycle.     

The European digital single market strategy: Local indicators of spatial association 2011–2016

This paper describes the space-time dynamics of the European digital divide. The frequencies of internet and E-commerce use are considered, along with a broad range of indicators associated with the European digital single market strategy. This paper aims to investigate the spatial structure underlying these aggregate outcome indicators. An exploratory spatial data analysis is conducted in a sample of 209 regions using Eurostat data. Strong evidence for both global and local spatial autocorrelation is found for the years 2011–2016. Consistently, a North-South polarization scheme is identified with little statistical significance in the centre of Europe. This contrasts with the high income cluster found in central Europe, while low values for digital indices and income are co-located more consistently in the South, but also in the North-East. Highlights from the specific results include: areas surrounding London as a dynamic high value cluster in E-commerce, Italy to conduct few cross-border purchases, France as a consistent adopter of E-governance, and broadband rates in general to closely reflect online activities.     

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.     

Homeownership Effects of Alternative Mortgage Instruments*

Most of the interest in alternatives to the standard mortgage instrument has centered on the ability of the alternatives to improve on the performance of the mortgage instrument over the business cycle. The focus in this paper is on the long-term effects on homeownership rates and associated additional residential construction. The instruments are found to offer potentially large increases in homeownership rates by reducing monthly mortgage payments. Widespread adoption of those instruments causing larger payment reductions would allow around one million more households to become owner-occupants. The demand for new single-family homes would increase over the long run by 3 to 4 percent a year. Homeownership could be further increased by a time-limited subsidy directed at moderate income families.     

What level of dialtone penetration constitutes ‘universal service’?

This paper focuses on estimating whether a natural level of non-penetration exists, and if so, what the maximum attainable penetration rate is. Universal service penetration levels have steadily increased over the last decade. This paper hypothesizes that penetration levels will level off over time at some point below 100%. Econometric models have been created to estimate penetration rates as a function of several explanatory variables, including per capita personal income, price changes for residential local service, price changes for toll services, and the existence of lifeline programs. The modeling results also provide information on cross-elasticities between toll and local service and the effects of the FCC's subscriber line charges and lifeline programs on the universal service policy goal. In summary, this research provides new information on the topic of what constitutes universal service and provides considerable data regarding own-price and cross-price elasticities associated with residential local service.     

Forecasting the Discounts of Market Prices from Appraised Values for Real Estate Limited Partnerships

A vexing problem for the appraisal industry has been estimating an appropriate discount for the value of real estate limited partnerships (RELPs) relative to their appraised value. This research develops a linear regression model that explains over 80% of the cross-sectional variation in discounts across 60 RELPs using characteristics of each partnership. Among a holdout sample of 41 RELPs, the model provides forecasts of discounts that are superior to assuming no discount or applying a mean discount to all partnerships. Discounts are greatest for RELPs with low current yields, low leverage and high trading ranges for their market prices.     

The two dimensions of policy impacts on economic cohesion: Concept and illustration for the CAP

Given the growing importance of cohesion policy within the European Union (EU) during the last two decades, public and scientific interest in the role of EU policies for regional disparities has risen continuously. Recent empirical studies on the impacts of the Common Agricultural Policy (CAP) on economic cohesion have been strikingly diverse in their principal findings. Whereas some studies suggest positive overall effects on economic cohesion, others stress exactly the opposite. One major reason for the ambiguous results is that a single agreed-upon measure of economic cohesion is lacking. We propose a concept that distinguishes between two dimensions of policy impacts on economic cohesion: (i) the redistributive impact at a defined period of time and (ii) the change of the redistributive impact over time. The first dimension addresses the question whether a policy makes the distribution of a target variable, e.g., income, more equal or unequal at one point of time. The second dimension covers the impact of the policy on the disparity of the same variable over time, i.e., the impact on convergence. An empirical illustration of the concept for 13 NUTS 1 regions in Germany over the period 1991–2009 reveals that the two policy impacts of the CAP are partly contradictory for the two dimensions. It is shown that the CAP fosters economic cohesion by reducing regional disparities in each individual year. With regard to redistributive impacts over time, we find that CAP transfers leave income convergence largely unaffected for society as a whole. Within the agricultural sector, it leads to a convergence of receipts per farm whereas it induces a divergence of farm receipts per hectare.     

Commuting with Lost Housing Services as the Opportunity Cost

In American metropolitan areas, households are highly mixed by income with higher average incomes at greater distances from downtown. Also, suburbs attract families with children, while poor households and small households with young heads select sites close to the commercial core. These empirical observations and others are predicted by this standard model of a monocentric city with three major modifications. Time at work is controlled by employers, not employees. Households with more members at home consume in the same house more housing services. Finally, lot prices need not be proportional to area. In the resulting equilibrium, households are mixed by income and separated by family size. This contrasts with classic urban models where households are separated only by their workers' wage rates.