The Demand for Housing Additions: An Empirical Analysis

Little is known of a household's decision to make a housing addition despite the large and growing size of these expenditures. This paper examines this decision in a two-step empirical process: first, those factors that influence the probability of a housing addition are determined, and second, the value of the addition made is analyzed. Preliminary results indicate that unmet housing consumption needs, but not the investment potential of housing additions, have a significant impact on both the probability of an addition and the value of an addition made. Furthermore, ceteris paribus, non-white households have a greater probability of making a housing addition, and on average, spend more on housing additions than do white households.     

Guarding the Town Walls: Mechanisms and Motives for Restricting Multifamily Housing in Massachusetts

Local governments frequently restrict multifamily housing through a variety of zoning tools, which may reduce the ability of low-income households to afford housing in desirable locations. In this article, I use a new and unusually rich data set on zoning in Massachusetts to test several hypotheses about why municipalities restrict multifamily housing. Under regulations adopted in the 1940s and 1950s, communities with more existing multifamily housing or governed by a city council zoned more leniently for multifamily housing. Beginning in the 1970s, the use of special permits increased and smaller, more affluent communities were more restrictive.     

Amenity‐Based Housing Affordability Indexes

The recent slump notwithstanding, substantial increases in house prices in many parts of the United States have served to highlight housing affordability for moderate‐income households, especially in high‐cost, supply‐constrained coastal cities such as Boston. In this article, we develop a new measure of area affordability that characterizes the supply of housing that is affordable to different households in different locations of a metropolitan region. Key to our approach is the explicit recognition that the price/rent of a dwelling is affected by its location. Hence, we develop an affordability methodology that accounts for job accessibility, school quality and safety. This allows us to produce a menu of town‐level indexes of adjusted housing affordability. The adjustments are based on obtaining implicit prices of these amenities from a hedonic price equation. We thus use data from a wide variety of sources to rank 141 towns in the greater Boston metropolitan area based on their adjusted affordability. Taking households earning 80% of area median income as an example, we find that consideration of town‐level amenities leads to major changes relative to a typical assessment of affordability.     

The Affordability of Adequate Housing

A "quality-based" measure of housing affordability problems employing the cost of housing just meeting adequacy standards is proposed as an improvement over the conventional "high" rent-to-income criterion. Based on Annual Housing Survey data, affordability difficulties grew between 1975 and 1983 by either measure. The conventional measure, however, overestimated the extent of quality-based affordability difficulty for renters by 20% in 1975 and 24% in 1983 based upon Section 8 housing quality standards. In addition, 35% of rental households with an affordability problem by the conventional measure did not have an affordability problem by the quality-based measure, while 19 to 23% of rental households found to have an affordability problem by the quality-based measure were not so classified using the conventional measure.     

The Interaction of Building Codes and Housing Prices

The study analyzes the effect of restrictive building codes on the price of housing, and the simultaneous impact of housing values on the strictness of codes. A model is defined and estimated, using data for more than 1100 localities. The results show that strict codes raised housing values, in 1970, by about one thousand dollars. They furthermore show that the strictness of codes is in turn affected by housing values, as well as by the strength of construction unions. Homeowners and construction unions are thus both observed to gain from restrictive building codes, which can explain the prevalence of such regulations.     

Price Expectations,Distressed Mortgage Markets and the Housing Wealth Effect

Using a unique combination of regulatory and survey microdata, we examine the importance of the life cycle theory of consumption in estimating housing wealth effects for the Irish mortgage market. Since the recent financial crisis, this market has experienced substantial house price declines and negative equity. Thus, house price expectations are likely to be important in influencing housing wealth effects. We find a positive correlation between consumption and changes in housing wealth among our sample of mortgaged Irish households. Furthermore, we find that this positive association only exists when housing wealth changes are perceived to be of a permanent nature.     

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.     

Rates of Return on Housing of Low-and Moderate-Income Owners

While long-term returns to capital invested in owner-occupied housing have been competitive with other investment alternatives, no evidence exists on the market performance of the owner-occupied housing in which low- and moderate-income households would be most likely to invest. This article thus attempts to answer the question of whether the "affordable housing units" that are relevant to policy discussions concerning low- and moderate-income homeownership have experienced different rates of price appreciation than have higher valued dwellings. The national file of the American Housing Survey is used to estimate appreciation rates by value class in representative U.S. housing markets. We find that for the period 1974 through 1983 appreciation rates for lower valued housing were generally about equal to those for higher valued housing.     

New Home Affordability, Equity, and Housing Market Behavior

Recent analyses have reported quite different estimates of the percentage of American families who can afford to buy new homes. However, the differences in the levels of affordability have obscured two more important similarities between the studies: most measures of affordability are closely correlated over time, and none correlate at all with what in fact is occurring in the housing market. One important reason for the latter phenomenon is that affordability measures concentrate on income and ignore wealth. Newly available data from the Annual Housing Survey makes it possible to estimate the equity of current homeowners, which is one important component of wealth. With this data, it is possible to compute a new measure of affordability, which more closely corresponds to the actual market behavior of households. This new measure shows a much higher level of affordability than those previously published, and also shows that young families, who have been the subject of particular concern among housing policy-makers, appear to be slightly better off in the housing market than older families.     

Indicators of Local Housing Affordability: Comparative and Spatial Approaches

This paper focuses on the measurement of local housing affordability problems. A number of different housing market indicators are offered that help identify the magnitude and nature of housing affordability problems and their geographic distribution. This interest is prompted by the predominance of housing affordability problems and the severity of the problems for many of the lowest income renter households. In addition, there is significant policy interest in "the national goal that every American family be able to afford a decent home in a suitable environment" (National Affordable Housing Act of 1990). This paper develops measures of the spatial distribution of affordability problems and implements measures of the mismatch between the demand and supply of housing affordable to the lowest income households.     

The Impact of Housing Vouchers on Mobility and Neighborhood Attributes

This article examines the effect of receiving a housing voucher on the mobility and neighborhood attributes of low‐income households. Housing policy has shifted toward vouchers in lieu of public housing projects to allow households to move away from high‐poverty areas. We use administrative records collected from an experiment to examine this issue. We find that households moved immediately after receiving the subsidy but did not relocate to lower poverty neighborhoods until several quarters later. Our findings suggest that recipients initially lease in nearby units to secure the subsidy, while continuing to search for housing in lower poverty neighborhoods.     

Inflation,Taxes, and the Demand For Housing*

Inflation affects homeownership and housing adversely through the “real-payment tilt” of the conventional mortgage. Expectations of additional housing price appreciation, however, may induce households to invest in housing. This paper uses household data to estimate the demand for homeownership and housing, and it takes explicit notice of expectations of housing price appreciation. The results indicate for each 1% increase in the inflation rate that the conditional probability of purchase falls by 3%. Interest rate effects outweigh appreciation and tax effects. Given the decision to purchase, housing appreciation expectations do not have large effects on the amount purchased.     

Housing Adjustment Costs: Their Impact on Mobility and Housing Demand Elasticities

The role of housing adjustment costs in influencing mobility decisions, and the relationship between these and housing demands is not well understood. Here we try to examine how changes in adjustment costs as well as in such demand factors as income, influence the decision of households to adjust their housing consumption through moving. Empirically, we use a sample of recently moving homeowners from the PSID and provide evidence indicating adjustment costs are more important than other demand factors in influencing mobility decisions. We also argue that sample selection may bias estimates of housing demand elasticities when the sample is restricted to recent movers because the influence of adjustment costs in the mobility decision are not accounted for. Testing for this using the Heckman two-stage procedure, however, showed this was not a significant problem.     

The Resale Housing Market

This paper describes and analyzes the structure and operation of the market for existing single-family homes. The paper develops aggregative models of sales and renovation activity based on the adjustment choice decisions of households to alter their housing consumption by moving or by undertaking renovations. The models demonstrate that housing resales and renovation expenditures occur when the present value of the gains associated with a housing adjustment exceeds the costs of the transaction. The choice of the adjustment mode is shown to be significantly influenced by the relative transactions costs of moving versus renovating.     

Housing Rental Contracts and Adverse Selection with an Application to the Rent-Own Decision

A model of rental housing is developed in which landlords cannot observe the utilization rate of their tenants. As a result of this imperfect information, an adverse selection problem exists where high utilization households have an incentive to conceal their type in order to obtain more favorable contract terms. Consequently, the market equilibrium must satisfy a self-selection constraint, which imposes certain restrictions on the set of contracts that will be offered by landlords. These restrictions are examined in detail, and their implications for a household's decision to rent or own its housing are derived.     

A Vacancy Transfer Model of the Structure of the Local Housing Market

Household mobility data derived from vacancy chain or turnover studies may be used to develop a Markov model of the local housing market. Such a model based on empirical data from the Detroit metropolitan area indicates a strong tendency for households to substantially increase their housing expenditures when they move. This finding is consistent with the filtering model of local housing market dynamics. However, these data do not support the hypothesis that more expensive new housing will produce the greatest number of indirect housing opportunities. New units at every cost level generated about the same total of turnover vacancies. The model also indicates that all types of new construction ultimately have their greatest impact on lower cost housing in established communities.     

Is Selection Bias Inherent in Housing Transactions? An Equilibrium Approach

We develop an equilibrium model for residential housing transactions in an economy with houses that differ in their quality and households that differ in their planned holding horizon. We show that, in equilibrium, a clientele effect persists, with long‐horizon buyers overwhelmingly choosing higher quality properties and short‐horizon buyers settling for lower quality properties. This clientele effect creates a sample selection bias: the properties that are on the market are predominantly of lower quality. Since these are the preferred choice of short‐horizon buyers, they demonstrate a faster turnover. Both the clientele effect and the selection bias are more pronounced with an increase in the variance of house quality and in the variance of the planned holding horizon. Our theoretical model supports empirical evidence on the existence of such bias in home price indices and explains it by the differences in ex ante holding horizons.     

Trends in Substandard Housing 1940–1980

"A decent home and a suitable living environment for every American family" has remained an elusive goal since it was first stated by Congress in the Housing Act of 1949. This owes in large part to the difficulty of translating the goal into practical definitions of housing objectives, and of developing reasonably precise estimates of U.S. housing quality, especially as these estimates may be changing over time. This paper discusses the difficulties involved in measuring housing (in)adequacy, reviews previous definitions of U.S. housing quality, and delineates a measure of housing inadequacy. Then, based upon this current measure, the numbers of inadequate housing units are calculated for 1973–1978 (years for which complete Annual Housing Survey data are available), melded with the traditional measure of "substandard" housing for the years 1940–1970, and predicted for 1979–1980 (years for which only core AHS data were currently available).
The study's principal findings are twofold:
First, The U.S. housing stock has shown a fairly steady improvement in average quality during the last forty years, a trend that appears to be continuing.
Second, while the search for better measures of housing quality must continue, HUD's current definition of physically inadequate housing represents the state of the art and, with proper calibration, provides a reasonably consistent basis for measuring U.S. housing quality over time.     

The Performance of Annual Housing Survey Quality Measures in Explaining Dwelling Rentals in 20 Metropolitan Areas

Articles concerned with the Hedonic Estimation of the Price of Housing Services have often employed the concept of housing "quality." Quality measurement is best defined as employment of distinct variables to classify dwelling attributes which are for some reason not decomposed into their unidimensional components. The Annual Housing Survey reports a series of variables which, describing the performance of housing attributes, may be classified as quality variables. Past studies have not properly identified the stochastic nature of the performance measure-quality relationships. This paper defines that relationship and devises a procedure to measure the rent performance relationship for twenty cities in the survey. Empirical results confirm the usefulness of the measures explaining housing quality within and among metropolitan areas.     

Another Look at the Economics of Demand-Side Versus Supply-Side Strategies in Low-Income Housing

This paper presents evidence of the relative efficiency of a particular variant of demand-side housing strategy vis-a-vis the supply-side Section 8 New Construction program. The model is cast explicitly in terms of theory of consumer behavior, allowing the estimation of price subsidy rates under the demand-side strategy, that would yield the same welfare improvement as the Section 8 program. The results indicate that neither the latter strategy nor the former clearly dominates in terms of traditional goals of low-income housing policy. The increases in housing consumption induced by the demand-side strategy, while less than those from the supply-side strategy, are significant, and are accompanied by substantial reductions in housing affordability problems (rent burdens). It is shown that anywhere from .63 to 2.16 additional households could have been served for each household served under the Section 8 program, with the demand-side strategy, at no additional cost to the taxpayer.