Donald R. Haurin

The social and private micro-level consequences of homeownership

Abstract This paper reviews the literature that describes the micro-level economic and social consequences of homeownership. We adopt an interdisciplinary approach and include studies from economics, sociology, geography, political science, psychology, and other disciplines. Our focus is on the set of consequences of homeownership in developed countries. Our list of potential outcomes of homeownership includes the impact on household wealth and portfolio choice, mobility, labor force participation, urban structure and segregation, home maintenance, political and social activities, health, demographics, self-esteem, and child outcomes. There is substantial evidence that homeownership has important effects on some household behaviors and outcomes. However, we find that much of the past 30-years literature on consequences of homeowning is deficient from a theoretical or econometric perspective. We suggest solutions and identify research gaps present in the literature.

Sample Selection Bias and Repeat-Sales Index Estimates

Analysis of variations in house values among localities requires reliable house value indices. Gatzlaff and Haurin (1994) indicate that traditional hedonic house value index estimates, using only information from a sample of sold homes to estimate value movements for the entire housing stock, may be subject to substantial bias. This article extends previous work by adapting the censored sample procedure to the repeat-sales index estimation model. Using data from Dade County, Florida, a house value index constructed from a sample of homes selling more than once, rather than all houses in a locality, is found to be biased. The bias is shown to be highly correlated with changes in economic conditions.

Educational Outcomes and House Values: A Test of the Value Added Approach

We use house price hedonics to compare the extent that homeowners value traditional measures of school quality or the ?value added? of schooling. Unlike other studies, we use spatial statistics as an identification strategy. Based on our study of 310 school districts and 77,000 house transactions, we find little support for the value added model. Instead, we find that households consistently value a district?s average proficiency test scores and expenditures. The elasticity of house prices with respect to school expenditures is 0.49 and an increase in test scores by one standard deviation, ceteris paribus, raises house prices by 7.1%.

Selling Time and Selling Price: The Influence of Seller Motivation

We consider the role that seller motivation plays in determining selling time, list price and sale price. A new survey of home sellers suggests that sellers are heterogeneous in their motivation to sell. Our findings are that a seller who, at the time of listing, has a planned date to move sells more quickly than one who does not. Also, the shorter the planned time until a move at the time of listing, the shorter the actual duration of marketing time. We find that seller motivation affects sale price, but not the list-price markup. Our results suggest that theoretical models of the housing search process should be recast to allow for heterogeneous sellers. Copyright American Real Estate and Urban Economics Association.

The Impact of Neighborhood Homeownership Rates: A Review of the Theoretical and Empirical Literature

Interest in measuring the impact of neighborhood homeownership rates on the residents of a neighborhood and on surrounding neighborhoods is increasing. This topic is part of the growing literature in the social sciences that discusses the theory and measurement of how neighborhoods affect individuals. In this review, we report on the conceptual categorization of the types of neighborhood effects, we review the social science literature that presents theories of how neighborhoods affect the residents or surrounding areas, and we review the empirical literature that measures the size of neighborhood effects. Throughout, we highlight the impact that differences in neighborhood homeownership rates may have on the economic and social outcomes of the residents. We find numerous theories that, when applied to neighborhood homeownership rates, have rich sets of testable predictions. In contrast, we find few empirical studies of the impact of neighborhood homeownership rates. We conclude that little is known about the impact of cross-sectional or intertemporal variations in neighborhood ownership rates and a substantial amount of additional research is needed. We show that understanding the way in which neighborhood homeownership rates impact behaviors is very important to measuring the impact of public policy. Also, knowing whether neighborhood homeownership effects have a nonlinear impact is important when deciding whether public policy should encourage clusters of homeowners.

Income variability, homeownership, and housing demand

In an analysis of the factors that affect the likelihood of homeownership, the intertemporal variability of income is found to be important. A 10% increase in variability reduces homeownership by the same amount as a 5% decrease in income. Also important in explaining homeownership and the quantity of housing demanded in a measure of whether a households tenure choice is constrained by the downpayment qualification requirement of mortgage lenders. The study also argues that the use of permanent income as an explanatory variable is inappropriate in housing choice models because labor supply is a choice variable. An alternative measure based on a permanent wage concept is developed and tested in the empirical analysis.

The Regional Distribution of Population, Migration, and Climate

Regional migration is analyzed utilizing a model that develops a system of urban areas. The areas differ in their endowment of a site-specific factor—climate is used as the example. The effects of differences in tax rates and technology are determined in a model where the price of housing is endogenous. Compensation for an inferior climate occurs through regional differences in income levels or the price of housing, dependent on the manner in which climate affects production or consumption. The market distribution of households is found to be suboptimal in cases where utility is derived directly from the consumption of climate.

House Price Indexes: Issues and Results

AREUEA is pleased to acknowledge the support of the National Association of REALTORS for this special issue on house prices. We are particularly grateful to John Tuccillo, Senior Vice President and Chief Economist at NAR, for recognizing the importance of this emerging research area. The editors also acknowledge the support of their colleges at The Ohio State University and of the Homer Hoyt Institute.

Effects of income variability on the demand for owner-occupied housing

Abstract This study investigates whether the uncertainty associated with an income stream affects the demand for owner-occupied housing. Theoretical models yield an ambiguous sign for the direction of change in consumption, but our empirical findings are consistent with the hypothesis that the consumption of housing falls when the uncertainty of receipt of income increases. Specifically, in a sample of military employees, the income earned by wives had little or no effect on the demand for housing. We also find evidence that suggests the demand for housing is affected by pension rights: the closer to retirement, the stronger the effect.

List Prices, Sale Prices and Marketing Time: An Application to U.S. Housing Markets

Many goods are marketed after first stating a list price, with the expectation that the eventual sales price will differ. In this article, we first present a simple model of search behavior that includes the seller setting a list price. Holding constant the mean of the buyers’ distribution of potential offers for a good, we assume that the greater the list price, the slower the arrival rate of offers but the greater is the maximal offer. This trade-off determines the optimal list price, which is set simultaneously with the sellers reservation price. Comparative statics are derived through a set of numerical sensitivity tests, where we show that the greater the variance of the distribution of buyers’ potential offers, the greater is the ratio of the list price to expected sales price. Thus, sellers of atypical goods will tend to set a relatively high list price compared with standard goods. We test this hypothesis using data from the Columbus, Ohio, housing market and find substantial support. We also find empirical support for another hypothesis of the model: atypical dwellings take longer to sell.