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on Urban and Real Estate Economics |
| By: | Joseph Gyourko |
| Abstract: | Recent sharp declines in owner-occupied housing prices naturally raise the question of whether something similar will happen to income-producing properties. It already has based on the nearly 60% decline in the share prices of publicly-traded, commercial property firms from their peak in early 2007. The core model of spatial equilibrium in urban economics suggests this should not be a surprise, as it shows that both real estate sectors are driven by common fundamentals, which should make them perform similarly. On the other hand, stronger limits to arbitrage in housing suggest wider swings in prices unrelated to fundamentals are feasible in that property sector. The data find many more similarities than differences across the two real estate sectors. The simple correlation between appreciation rates on owner-occupied housing and commercial real estate is nearly 40%. Both sectors also exhibit similar time series patterns in their price appreciation, with there being persistence across individual years and mean reversion over longer periods. Commercial real estate capital structure looks to be quite weak due to high leverage combined with strong mean reversion in prices. The aggregate loan-to-value ratio on income-producing properties is about 75%. Estimated mean reversion in price appreciation of at least 25% over relatively short horizons suggests that normal change from the recent peak will leave little or no equity on average to cushion against any future negative shocks. |
| JEL: | R0 R21 R31 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14708&r=ure |
| By: | Brown, Jason P.; Lambert, Dayton M. |
| Abstract: | Attracting manufacturing investment remains a viable regional development policy. Previous research in the location literature has informed policymakers which factors are most important for attracting new firm investment. Far less is known about the dynamics of firm death and the possible interaction with firm birth. A conceptual model of county-level investment in the U.S. manufacturing sector is developed from location theory and subsequent literature. Specifically, we test the relative importance of location factors influencing firm investment, and if these factors influence firm birth and death differently. Local factors include labor quality, availability, and cost, market conditions, agglomeration due to localization and urbanization economies, infrastructure, and fiscal policy. This study covers the time period 2000 to 2004 for U.S. counties in the lower 48 states. Firm data are from the U.S. Census Bureau’s Dynamic Firm Data Series, which links establishments across space and time. Regional adjustment models are used to show how ceteris paribus changes in location factors affect the birth and death rates in a county. |
| Keywords: | location factors, manufacturing, creative destruction, Community/Rural/Urban Development, L60, R11, R12, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saeana:46739&r=ure |
| By: | Busso, Matias (U of Michigan); Kline, Patrick (Yale U) |
| Abstract: | This paper evaluates the impact of Round I of the federal urban Empowerment Zone (EZ) program on neighborhood level labor and housing market outcomes over the period 1994-2000. Using four decades of Census data in conjunction with information on the proposed boundaries of rejected EZs, we find that neighborhoods receiving EZ designation experienced substantial improvements in labor market conditions and moderate increases in rents relative to rejected and future zones. These effects were accompanied by small changes in the demographic composition of the neighborhoods, though evidence from disaggregate Census tabulations suggests that these changes account for little of the observed improvements. |
| JEL: | C21 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:36&r=ure |
| By: | Berliant, Marcus; Kung, Fan-chin |
| Abstract: | The modern literature on city formation and development, for example the New Economic Geography literature, has studied the agglomeration of agents in size or mass. We investigate agglomeration in sorting or by type of worker, that implies agglomeration in size when worker populations differ by type. This kind of agglomeration can be driven by asymmetric information in the labor market, specifically when firms do not know if a particular worker is of high or low skill. In a model with two types and two regions, workers of different skill levels are offered separating contracts in equilibrium. When mobile low skill worker population rises or there is technological change that favors high skilled workers, integration of both types of workers in the same region at equilibrium becomes unstable, whereas sorting of worker types into different regions in equilibrium remains stable. The instability of integrated equilibria results from firms, in the region to which workers are perturbed, offering attractive contracts to low skill workers when there is a mixture of workers in the region of origin. |
| Keywords: | Adverse Selection; Agglomeration |
| JEL: | R13 D82 R12 |
| Date: | 2009–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13085&r=ure |
| By: | Teemu Lyytikäinen |
| Abstract: | This thesis consists of an introduction to the economic analysis of housing markets (Chapter 1) and three studies each analyzing different housing policy instruments. Chapter 2 examines the effect on housing construction of the Finnish property tax system. The focus is on the effects of taxing undeveloped land at a higher rate than developed land. Theoretical analysis indicates that pre-development land tax should lead to faster development but a side-effect of this is that the density of development may be affected too. According to empirical results, a higher pre-development land tax increases single family housing starts but does not affect development density measured as the volume (cubic meters) per started unit. Chapter 3 analyzes the costs and benefits of rent control to tenants. The focus is on the measurement of welfare losses from misallocation of housing under rent control. Empirical results suggest that the costs of increased mismatch between dwellings and households under rent control offset much of the benefits of low rents to tenants. Chapter 4 examines the incentive effects of the Finnish housing allowance system. Theoretical analysis shows that the system creates incentives to move to dwellings with certain space?quality combinations. Empirical analysis suggests that households eligible for housing allowance do not respond to the incentives. |
| Keywords: | Housing, property tax, rent control, housing allowance |
| Date: | 2008–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:fer:resrep:140&r=ure |
| By: | Fabio Cerina; Francesco Mureddu |
| Abstract: | We develop a New Economic Geography and Growth model which, by using a CES utility function in the second-stage optimization problem, allows for expenditure shares in industrial goods to be endogenously determined. The implications of our generalization are quite relevant. In particular, we obtain the following novel results: 1) catastrophic agglomeration may always take place, whatever the degree of market integration, provided that the traditional and the industrial goods are sufficiently good substitutes; 2) the regional rate of growth is affected by the interregional allocation of economic activities even in the absence of localized spillovers, so that geography always matters for growth and 3) the regional rate of growth is affected by the degree of market openness: in particular, depending on whether the traditional and the industrial goods are good or poor substitutes, economic integration may be respectively growth-enhancing or growth-detrimental. |
| Keywords: | new economic geography, endogenous expenditure shares, substitution effect |
| JEL: | O41 F43 R12 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:200820&r=ure |
| By: | Belot M (Department of Economics, University of Essex); James J (Department of Economics, University of Essex) |
| Abstract: | This paper uses the "Jamie Oliver Feed Me Better" campaign to evaluate the impact of healthy school meals on educational outcomes. The campaign introduced drastic changes in the meals offered in the schools of one Borough, shifting from low-budget processed meals towards healthier options. We evaluate the effect of the campaign on educational outcomes using a difference in differences approach; comparing key stage 2 outcomes in primary schools before and after the reform, using the neighbouring Local Education Authorities as a control group. We find evidence that healthy school meals did improve educational outcomes, in particular in English and Science. |
| Date: | 2009–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:ese:iserwp:2009-01&r=ure |
| By: | Neil Bhutta |
| Abstract: | In this paper I estimate the effect of the Underserved Areas Goal (UAG) established under the “GSE Act”, a 1992 law mandating that the housing government-sponsored enterprises Fannie Mae and Freddie Mac help promote credit access and homeownership opportunities for low-income households and in low-income and minority neighborhoods. I identify the goal’s impact by taking advantage of a discontinuity in the census tract eligibility rule. Employing local linear and non-parametric regression discontinuity methods, I find that this goal has had a direct effect on GSE purchasing activity of 3-4% and increases overall GSE-eligible originations by 2-3% on average at the cutoff between 1997 and 2002. Changing eligibility status following the release of Census 2000 data provides another source of variation to identify the UAG’s effect in 2005 and 2006, years of sharply increasing goals levels and years which have contributed heavily to current credit losses. I find that while the UAG affected GSE behavior in 2005 and 2006, GSE risk avoidance limited their response. Unlike previous research, I find no evidence that UAG-induced increases in GSE credit supply crowds-out FHA and subprime lending. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2009-03&r=ure |
| By: | Agarwal, Sumit (Federal Reserve Bank of Chicago); Amromin, Gene (Federal Reserve Bank of Chicago); Ben-David, Itzhak (Ohio State U); Chomsisengphet, Souphala (Office of the Comptroller of the Currency); Evanoff, Douglas D. (Federal Reserve Bank of Chicago) |
| Abstract: | We explore the effects of mandated financial counseling to borrowers on the terms and availability of mortgage credit. Our study is based on a natural experiment in Cook County, Illinois that took place in 2006. The County issued a legislation that required low credit mortgage borrowers in 10 zip codes in Cook County to take financial counseling before accepting loan proposals from state-licensed lenders. Our results are based on a difference-in-differences analysis. We document that as a consequence of the legislation, both supply and demand of credit declined, with marginal borrowers being pushed out of the market. Due to the change in composition of buyers, market adjusted property prices increased over the period and the remaining treated borrowers borrowed at lower rates (controlling for credit quality). The fraction of full documentation loans increased over the treatment period. |
| JEL: | D14 D18 L85 R21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2008-20&r=ure |
| By: | Lewis, David J. (U of Wisconsin); Provencher, Bill; Butsic, Van |
| Abstract: | Recent economic analyses emphasize that designated open-space increases the rents on neighboring residential land, and likewise, the probability of undeveloped land converting to residential uses. This paper addresses a different question: What is the effect of local open space conservation on the rate of growth in the density of existing residential land? The analysis is relevant for exurban development and also for remote lakeshore development, where shoreline development density can rapidly increase over time and open-space policies are often advocated as a way to protect ecosystems by reducing development. A discrete choice econometric model of lakeshore development is estimated with a unique parcel-level spatial-temporal dataset, using maximum simulated likelihood to account for i) the panel structure of the data, ii) unobserved spatial heterogeneity, and iii) sample selection resulting from correlated unobservables. Results indicate that, contrary to the intuition derived from the current literature, local open space conservation policies do not increase the rate of growth in residential development density, and some open space conservation policies may reduce the rate of growth in residential development density. This is consistent with land-value complementarity between local open space and parcel size. Spatially-explicit simulations at the landscape scale examine the relative effects of conservation policies on the time path of development. |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:wisagr:522&r=ure |
| By: | Brunner, Eric (Quinnipiac U); Ross, Stephen L. (U of Connecticut); Washington, Ebonya (Yale U) |
| Abstract: | There is a large literature demonstrating that positive economic conditions increase support for incumbent candidates, but little understanding of how economic conditions affect preferences for parties and for particulars of their platforms. We ask how exogenous shifts to the value of residents' human capital affect voting behavior in California neighborhoods. As predicted by economic theory, we find that positive economic shocks decrease support for redistributive policies. More notably, we find that conservative voting on a wide variety of ballot propositions — from crime to gambling to campaign finance — is increasing in economic well being. We further show that positive economic circumstances decrease turnout and have a mixed impact on candidate choice, highlighting a limitation of inferring policy preferences from party choice. |
| JEL: | D72 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:50&r=ure |
| By: | Ahrend, Rudiger |
| Abstract: | This paper addresses the question of whether and how easy monetary policy may lead to excesses in financial and real asset markets and ultimately result in financial dislocation. It presents evidence suggesting that periods when short-term interest rates have been persistently and significantly below what Taylor rules would prescribe are correlated with increases in asset prices, especially as regards housing, though no systematic effects are identified on equity markets. Significant asset price increases, however, can also occur when interest rates are in line with Taylor rules, associated with periods of financial deregulation and/or innovation. The paper argues that accommodating monetary policy over the period 2002-2005, in combination with rapid financial market innovation, would seem in retrospect to have been among the factors behind the run-up in asset prices and financial imbalances -- the (partial) unwinding of which helped trigger the 2007/08 financial market turmoil. |
| Keywords: | Interest rates, monetary policy, housing, sub-prime crisis, financial markets, macro-prudential, regulation Taylor rule, house prices |
| JEL: | E44 E5 F3 G15 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:7465&r=ure |
| By: | Shiller, Robert J. (Yale U) |
| Abstract: | The establishment recently of risk management vehicles for home prices is described. The potential value of such vehicles, once they become established, is seen in consideration of the inefficiency of the market for single family homes. Institutional changes that might derive from the establishment of these new markets are described. An important reason for these beginnings of real estate derivative markets is the advance in home price index construction methods, notably the repeat sales method, that have appeared over the last twenty years. Psychological barriers to the full success of such markets are discussed. |
| JEL: | G13 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:46&r=ure |
| By: | Thomas S. Dee |
| Abstract: | Achievement gaps may reflect the cognitive impairment thought to occur in evaluative settings (e.g., classrooms) where a stereotyped identity is salient (i.e., stereotype threat). This study presents an economic model of stereotype threat that reconciles prior evidence on how student effort and performance are influenced by this social-identity phenomenon. This study also presents empirical evidence from a laboratory experiment in which students at a selective college were randomly assigned to a treatment that primed their awareness of a stereotyped identity (i.e., student-athlete). This treatment reduced the test-score performance of athletes relative to non-athletes by 14 percent (effect size = -1.0). |
| JEL: | C9 D0 I2 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14705&r=ure |
| By: | Johannes Becker (Oxford University Centre for Business Taxation); Clemens Fuest (Oxford University Centre for Business Taxation) |
| Abstract: | The European Union provides coordination and financing of trans-European transport infrastructures, i.e. roads and railways, which link the EU Member States and reduce the cost of transport and mobility. This raises the question of whether EU involvement in this area is justified by inefficiencies of national infrastructure policies. Moreover, an often expressed concern is that policies enhancing mobility may boost tax competition. We analyse these questions using a model where countries compete for the location of profitable firms. We show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition. In contrast, with regard to union-periphery infrastructure, the union has an interest in a coordinated reduction of investment expenditures. Here, the effects on tax competition are ambiguous. Our results provide a rationale for EU-level regional policy that supports the development of intra-union infrastructure. |
| Keywords: | European Union, Infrastructure, Regional Policy, Tax Competition |
| JEL: | H54 H25 F23 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:btx:wpaper:0902&r=ure |
| By: | Ananat, Elizabeth Oltmans (Duke U); Washington, Ebonya (Yale U) |
| Abstract: | We find that exogenous increases in segregation lead to decreases in Black civic efficacy, as measured by an ability to elect Representatives who vote liberally and more specifically in favor of legislation that is favored by Blacks. This tendency for Representatives from more segregated MSAs to vote more conservatively arises in spite of the fact that Blacks in more segregated areas hold more liberal political views than do Blacks in less segregated locales. We find evidence that this decrease in efficacy is driven by greater divergence between Black and non-Black political views in the most segregated areas. Because Blacks are a minority in every MSA, increased divergence by race implies that the mean Black voter viewpoint is farther away from the mean voter viewpoint. Thus, reduced Black political efficacy may be one reason that Blacks in exogenously more segregated areas experience worse economic outcomes. |
| JEL: | D72 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:yaleco:30&r=ure |
| By: | MOTOHASHI Kazuyuki; YUAN Yuan |
| Abstract: | This study compares knowledge spillovers from multinationals to local firms in China between the automobile and electronics industries. In the automobile industry we find that multinationals in the assembly industry affect vertical spillovers to domestic parts supply firms, and horizontal spillovers also exist between domestic parts suppliers. In contrast, we cannot find vertical spillover effects of multinationals in the assembly industry to domestic suppliers in the electronics industry, only horizontal spillover effects from multinationals to domestic supply firms can be found. A different pattern of technology spillover suggests the importance of customization of FDI policy by industry. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:09005&r=ure |
| By: | Killion, M. Ulric |
| Abstract: | The Article first presents a brief history or survey of the some of the earlier problems that associate with China’s banking and financial institutions. The Article then addresses specific problems, in the context of the rules, procedures, and practices of the banking and finance sector, which widely range from non-performing loans, to China’s money market and interbank lending business. These problems also directly associate with the liberalization of the banking and finance sector of the economy, and the requirements of both the WTO rules and China’s WTO Protocol on accession. The Article also briefly explores the US sub-prime mortgage crisis and its contagion effect throughout the world, including the Asian region. In the context of China and the subprime crisis, the Article summarizes some of the problems that associate with China banking and financial institutions, by focusing on the policy implications of the history of banking and finance in China, and what this means in terms of both WTO compliance and greater liberalization of banking and financial institutions, especially pursuant to the WTO GATS, as service industries. All of this, eventually, allows for the presentation of certain conclusions concerning China banking and finance in the new era of a global subprime crisis. |
| Keywords: | China; banking; finance; WTO; GATT; GATS; subprime crisis; Interbank lending |
| JEL: | F10 F30 G21 |
| Date: | 2009–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13091&r=ure |
| By: | Carina Hirsch; Giovanni Sulis |
| Abstract: | This paper analyses the growth effects of high levels of human capital at the industry level. By favouring technology adoption, human-capital-intensive industries grow faster compared to less human-capital-intensive industries in economies that have higher levels of human capital. Using data for nine macro sectors of manufacturing industries in the twenty Italian regions, the results show positive and significant effects of human capital levels and accumulation on value added growth. This result is robust to a series of sensitivity checks such as measures of productivity growth and different indicators of human capital. This finding is particularly important for Italy, as it has always had a model of industrial specialization focused on the traditional sectors which have a low content of technology and human capital. |
| Keywords: | Growth, Human Capital, Technology Adoption, Regions, Sectors, Italy. |
| JEL: | O47 R11 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:200821&r=ure |
| By: | Martellosio, Federico |
| Abstract: | This paper investigates how the correlations implied by a first-order simultaneous autoregressive (SAR(1)) process are affected by the weights matrix W and the autocorrelation parameter . We provide an interpretation of the covariances between the random variables observed at two spatial units, based on a particular type of walks connecting the two units. The interpretation serves to explain a number of correlation properties of SAR(1) models, and clarifies why it is impossible to control the correlations through the specification of W. |
| Keywords: | simultaneous autoregressions; spatial autocorrelation; spatial weights matrices; walks in graphs. |
| JEL: | C50 C21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13141&r=ure |