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.     

Canada's Housing Bubble Story: Mortgage Securitization,the State,and the Global Financial Crisis

Canada's experience during and after the financial crisis appears to distinguish it from its international peers. Canadian real estate sales and values experienced record increases since the global financial crisis emerged in 2008, rather than declines, and Canada did not witness any bank failures. The dominant trope concerning Canada's financial and housing markets is that they are sound, prudent, appropriately regulated and ‘boring but effective’. It is widely assumed that Canadian banks did not need, nor receive, a ‘bailout’, that mortgage lending standards remained high, and that the securitization of mortgages was not widespread. The truth, however, does not accord with this mainstream view. In fact, the Canadian financial and housing markets reveal marked similarities with their international peers. Canada's banks needed, and received, a substantial ‘bailout’, while federal policies before and after the financial crisis resulted in the massive growth of mortgage securitization and record household indebtedness. This article documents the growth of Canada's housing bubble, the history of mortgage securitization, and of government policies implemented before and after the crisis. Instead of making the Canadian financial and housing sectors more resilient and sustainable, the outcomes of state responses are best understood as regressively redistributive.     

Household wealth accumulation and portfolio choices in Korea

This paper constructs a quantitative lifecycle model with uninsurable labor income and housing return risk to investigate how Korean households make saving and portfolio decisions. The model not only incorporates the special roles housing plays in the portfolio of households: collateral, a source of service flows, as well as a source of potential capital gains or losses, but also adds to existing models of wealth accumulation some unique institutional features present in Korea, namely the rental system (‘chonsae’) and the lack of a mortgage system. When the model is calibrated to match the Korean economy, several key features of the data are better able to be reproduced. The paper also analyzes the role of institutional features by comparing several alternative housing market arrangements to assess their impact on wealth accumulation, portfolio choices, and homeownership. A 10 percentage points reduction in down-payment requirement is associated with approximately 1 percentage point increase in the aggregate homeownership ratio in Korea. Lower down-payment also increases the fraction of aggregate wealth held in housing assets but lowers aggregate net worth with mixed demographic implications.     

Do the GSEs matter to low-income housing markets? An assessment of the effects of the GSE loan purchase goals on California housing outcomes

This study evaluates the effects of the GSE mortgage purchase goals on homeownership and housing conditions among communities that are the focus of the 1992 GSE Act and the HUD affordable housing goals. To identify GSE effects, the test framework exploits differences in the definition of lower-income and underserved neighborhoods under the 1992 GSE Act, which specifies loan purchase goals for the GSEs, and the 1977 Community Reinvestment Act, which governs loan origination activity among the federally-insured depository institutions. Research finding suggest little efficacy of the GSE home loan purchase goals in elevating the homeownership and housing conditions of targeted and underserved neighborhoods, in turn suggesting the importance of ongoing federal policy focus in achievement of affordable housing objectives.     

Homeownership and FHA Mortgage Activity in Neighborhoods and Metropolitan Areas

This paper examines the impact of Federal Housing Administration (FHA) mortgage insurance activity on homeownership at two levels: census tract and metropolitan area. The 1990 Home Mortgage Disclosure Act dataset combined with the 1980 and 1990 U.S. Censuses is used in the analysis. This study extends the previous studies of FHA activity by having broader coverage, a better measure of relative FHA activity and better control of other factors that affect homeownership and mortgage activity. The empirical results indicate that the FHA mortgage insurance program has significant positive effects on homeownership in predominantly white and/or moderate to high-income MSAs and predominantly minority and/or moderate- to high-income census tracts. However, the estimated coefficients associated with the relative FHA activity are found to be relatively small in magnitude. Overall, results suggest that FHA programs are of limited effect in the achievement of homeownership, but may be of greater assistance to whites relative to blacks.     

The supply of mortgage lending

This paper estimates the elasticity of supply of mortgage lending and tests the impact of the “availability” of funds on the markets for new housing and mortgage loans. Depending upon whether mortgage relative to total lending or the mortgage, Aaa bond yield differential is taken as the left-hand variable, the supply elasticity is found to be about 1 or about 5. No compelling evidence is found, however, that either federal agency purchases of mortgages or disintermediation has had an impact upon the supply of mortgage loans. The latter is more consistent with a relatively elastic supply of mortgage funds than with segmented mortgage markets. Examination of the determinants of both real house prices and of private residential construction also fails to reveal any significant impact of federal agency purchases or of disintermediation. It would appear, however, that real house prices are highly responsive to interest rates and that the elasticity of supply of new housing is about 5. Fluctuations in new construction would thus appear to be explainable by fluctuations in interest rates.     

Spillover effects of subprime mortgage originations: The effects of single-family mortgage credit expansion on the multifamily rental market

The dramatic expansion in subprime mortgage credit fueled a remarkable boom and bust in the US housing market and created a global financial crisis. Even though considerable research examines the housing and mortgage markets during the previous decade, how the expansion in mortgage credit affected the rental market remains unclear; and yet, over 30 percent of all U.S. households reside in the rental market. Our study fills this gap by showing how the multifamily rental market was adversely affected by the development of subprime lending in the single-family market before the advent of the 2007/2008 subprime induced financial crisis. We provide evidence for a fundamentals based linkage by which the effect of an innovation in one market (i.e, the growth in subprime mortgage originations) is propagated through to another market. Using a large database of residential rental lease payment records, our results confirm that the expansion in subprime lending corresponds with an overall decline in the quality of rental payments. Finally, we present evidence showing that the financial performance of multifamily rental properties reflected the increase in rental lease defaults.     

Macroeconomic implications of mortgage loan requirements: an agent-based approach

It is a well-known fact that the housing market, with its associated mortgage securities, plays a crucial role in modern economies. The recent crisis of 2007, triggered by the U.S. real estate bubble, confirms this key role and suggests the importance of regulating mortgage lending. This paper investigates these issues by designing a housing market with a linked mortgage lending instrument in the Eurace agent-based model. Our results show that the presence of a housing market in the model has relevant macroeconomic implications, driven mainly by the additional amount of endogenous money injected into the economy by new mortgages. This additional money generally helps to support and stabilize aggregated demand, thus improving the main economic indicators. However, if the regulation of mortgage lending is too lax, involving an increase in the debt-service-to-income ratio (DSTI), then the additional supply of mortgages no longer enhances macroeconomic performance, and the stability of the economic system is undermined. Based on a number of recent discussions, a regulation of stock control that targets households’ net wealth (a stock), rather than income (a flow) is designed and analyzed. The results show that regulation of stock control can be combined effectively with DSTI to increase the stability of the housing market and the economy as a whole. Interestingly, the regulation based on stock control also directly affects mortgage distribution among households, avoiding excessive concentration. From a policy perspective, our results suggest that the use of a mild flow control regulation, coupled with a stricter stock control measure, fosters sustainable growth and eases first-time buyers access to the housing market, encouraging homeownership.

     

Old Wine in Private Equity Bottles? The Resurgence of Contract‐for‐Deed Home Sales in US Urban Neighborhoods

This article describes the reemergence, in the wake of the mortgage crisis, of a predatory financial practice in predominantly black neighborhoods in the US: the contract for deed (CFD). The CFD has a notorious urban history; it was a focus of social justice organizing in 1960s Chicago, which helped lay the groundwork for advocacy that culminated in two important laws in the US: the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977. This article places the reemergence of the CFD in the post‐crisis cycle of housing investment and disinvestment, estimates the minimum scale of CFD ownership, and examines the geography of a well‐known CFD seller in the Atlanta area. As policymakers in the US took efforts to restrict predatory lending fueled by private‐label securitization following the subprime crisis, capital markets shifted toward private equity financiers who provided a new supply of lightly regulated capital for urban housing markets. Predominantly black neighborhoods became prey for high‐return schemes meant to extract as much cash flow out of vulnerable residents as possible, offering them the illusion of homeownership. The findings show that the CFD seller focused on black neighborhoods and suggests that its profits from this activity have been quite lucrative.     

Tax expenditures and other programs to stimulate housing: Do we need more?

Discussions to aid the housing industry raise several questions. First, does stimulation of housing demand require new direct subsidy programs? And, second, are any programs to increase demand worth their costs to society? The results in this paper indicate that the answer to both questions is no: the existing subsidy to homeownership in the tax code is, when combined with mortgage instruments that offset cash flow problems, fully capable of generating large increases in demand at the cost of significant tax expenditures; and the social benefits of increased housing demand are shown to be worth only about 60% of their costs. Consequently, increasing housing demand can be readily achieved, but doing so will be costly to the government and inefficient for society.     

Housing investment: What makes it so volatile? Theory and evidence from OECD countries

This paper explains how mortgage market liberalization can introduce greater volatility in the housing market, which is a stylized fact documented from OECD countries, with a DSGE model where households face a credit constraint and housing is used as collateral. The housing collateral constraint creates a link between the housing market and borrowing capacity, a link that amplifies the response of housing demand to technology shocks and strengthens in economies with more liberalized mortgage markets.     

Renting vs buying a home: A matter of wealth accumulation or of geographic stability?

I study the housing tenure decision in the context of a spatial life cycle model with uninsurable individual income risk, plausibly calibrated to match key features of the US housing market. I find that the relatively low ownership rate of young households is mainly explained by their high geographic mobility. Downpayment constraints have minor quantitative implications on ownership rates, except for old households. I also find that idiosyncratic earnings uncertainty has a significant impact on homeownership rates. Based on these results, I argue that the long term increase in ownership rates observed over the period 1993–2009 was not necessarily due to mortgage market innovations and the relaxation of downpayment requirements, as is often argued. Instead, it was simply an implication of US demographic evolution, most notably the decline in interstate migration and, less importantly, population ageing. The model predicts that an increase in the income risk (i.e. higher income inequality) has a positive impact on geographical mobility of young households, which means that young homeowners are less affected by the labour market inefficiency associated with homeownership.     

The Limits of Homeownership: Racial Capitalism,Black Wealth,and the Appreciation Gap in Atlanta

In the wake of the 2007–08 housing crash, the Black–white wealth gap reached a staggering 20 to 1. Since then, a growing chorus of influential voices has proposed measures to increase the Black homeownership rate as a means to narrow the gap. Others, however, have argued that the uneven racial geography of home price appreciation necessarily restricts the degree to which Black households, in the aggregate, can build wealth via homeownership. We aim to contribute to these debates by theorizing a racial appreciation gap as a central feature of urban housing markets under racial capitalism, and analyzing how neighborhood racial and income characteristics have structured home price appreciation from before the height of the housing boom (2000–03) to its post-crisis recovery (2014–16). Focusing on the two counties that encompass Atlanta, Georgia, USA—an area famous for Black prosperity—we find that a neighborhood's racial composition has a more salient impact on home price change than its income. Results indicate that when a place is marked as Black, this may itself inhibit home price appreciation, suggesting that an enduring racial appreciation gap may limit the potential for Black homeownership to substantively narrow the racial wealth gap.     

A micro view on home equity withdrawal and its determinants: Evidence from Dutch households

For most households, home ownership is the largest wealth component that has become more accessible through innovation and deregulation in mortgage markets. This paper studies the factors driving home equity withdrawal (HEW) at the household level using Dutch survey data. In the Netherlands, house prices were growing fast and mortgage expenses are to a large extent tax deductible. Expectations and perceptions do seem to play an important role in HEW. Withdrawers tend to be more positive about house price developments and – although having lower income – less concerned about their future economic situation. HEW can have a significant impact on both households and the economy, with most of the equity released being reinvested in the housing sector and only a small share used to finance consumption expenditure.     

The Variegated Financialization of Housing

There is a small but growing literature on the financialization of housing that demonstrates how housing is a central aspect of financialization. Despite the varied analyses of the financialization of housing and the importance of housing to financialization, the relations between housing and financialization remain under‐researched and under‐theorized. The financialization of housing is not really a specific form of financialization, transcending as it does a number of different forms of financialization. Housing systems, in particular, vary widely across the globe, which implies that housing financialization will be inherently variegated, path‐dependent and uneven. In this introduction to the symposium, I will discuss how the articles to follow contribute to the literature on the financialization of housing. Housing has entered a post‐Fordist, neoliberal and financialized regime. Increasingly, both mortgaged homeownership and subsidized rental housing are there to keep financial markets going, rather than being facilitated by those markets. There is little evidence that the global financial crisis has resulted in any de‐financialization of housing. There are common trajectories within uneven and variegated financialization, rather than radically different and completely unrelated forms of housing financialization.     

浅论对住房抵押贷款保险的认识

众所周知,购买住房消费是金额巨大且手续及为复杂的商品交易。对于相当大的一部分家庭来说,购买商品住房,仍然严重存在着资金不足的问题。住房抵押贷款的出现为房地产市场的发展注入了极大的活力,却无疑加大了贷款银行的风险。住房抵押贷款保险的出台使银行、房地产公司、保险公司和购房者均实现了"多赢",为推动房地产业的和谐发展作出了巨大的贡献。     

The measurement of rationing and the treatment of structural change in the uk mortgage market

UK mortgage markets have undergone major structural changes in the past few years, resulting in mortgages no longer being rationed. The ending of rationing has implications for the specification of empirical models of housing demand. Housing models have never adequately resolved how to incorporate unobservable mortgage rationing. Conventional proxy methods are particularly unsuitable, when rationing ceases. In this paper, we propose a new way of measuring rationing directly, which incorporates regime switching. The model of rationing is extensively tested and estimates of rationing for the period 1963–1988 are provided; these may be easily incorporated into housing demand studies.     

Public Homeownership, Housing Finance and Socioeconomic Development in Singapore

This paper first presents an analytic review of Singapore public homeownership policy developments over the past 35 years. The analysis will then focus on the two main reasons contributing to the success of Singapore public homeownership: the country's model of public housing finance; and the significant role public homeownership has played in its economic development. Finally, the paper concludes that the Singapore public housing system is not a ready package that can be applied anywhere, but that it does offer experiences that could be useful for other countries.     

Housing appreciation, mortgage interest rates, and homeowner mobility

This paper presents a model of the optimal timing of tradeup, which considers consumption and investment motives of homeownership. Households determine the optimal timing of trading up so as to maximize their intertemporal utility of both housing and nonhousing consumption. First we consider current homeowners, who already own a house and expect that they trade up to a more valuable house at some point in the future. Housing appreciation tends to induce an earlier optimal timing of trading up. Moreover, housing appreciation makes current homeowners better off in terms of welfare. However, current homeowners suffer from a rise in mortgage interest rates. Second, we consider first-time home buyers, who have decided to buy a house and expect to trade up to a more valuable house in the future. Their initial housing consumption is determined by an initial downpayment constraint. In this case, the effect of housing appreciation on the optimal timing of trading up is ambiguous and, unlike current homeowners, first-time home buyers suffer from housing appreciation. Moreover, as current homeowners, first-time home buyers suffer from a rise in mortgage interest rates. Most of the theoretical analytic results are ambiguous. Accordingly, we perform numerical simulations based on the theoretical model in order to determine the most likely comparative effects for a stylized set of parameters.As is apparent, the model captures the recent observations on homewner mobility and suggests that macroeconomic variables such as housing appreciation and mortgage interest rates effect the optimal timing of trading up and homeowner's welfare. Nevertheless, the model in this paper has several shortcomings, which should be the subject of future research. First, transaction costs are ignored. If transaction costs are incorporated, the lock-in effect from a rise in mortgage interest rates is well explained. However, the general analysis above is not altered in any essential way. Second, multiple moves are not considered in this model. Therefore, we concentrate on the timing of one tradeup as opposed to the timing and frequency of trading up. In a different vein, it would be interesting to test empirically the importance of the effects of macroeconomic variables on trading up by using microdata.     

The homeownership decision of female-headed households

The homeownership rate of female heads of household is substantially lower than the rate for married women. A number of factors could account for this observation including differences in income and its sources, wealth, demographic characteristics, and the relative price of homeownership. We identify the impact of these factors and find income and the cost of owning relative to renting to be most important. Analysis of changes in female ownership rates over a 10-year period reveals the impact of the Equal Credit Opportunity Act which eased access to the mortgage market. We find evidence that ECOA raised the probability of homeownership for all women. However, much of the difference in ownership rates between married and unmarried women remains unexplained, especially for high income households.