James D. Shilling

Price adjustment process for rental office space

Abstract This paper analyzes the price adjustment process for rental office space in 17 cities across the United States over the time period 1960 to 1975. The results confirm much of what economic theory suggests. Landlords react to fluctuations in demand by building up or drawing down inventories of unlet or vacant office space. Other things equal, higher levels of vacant office space mean that landlords lower their rents and reduce the difference between desired and actual vacancies. Empirical evidence is also presented on the normal vacancy rate across different cities.

Flood insurance, wealth redistribution, and urban property values

Abstract This paper examines the economics of the wealth transfer created by the National Flood Insurance Program (NFIP). By its very nature, NFIP is unique in that it subsidizes existing homeowners but not new construction. Thus for comparable properties, the gain captured by existing homeowners is the difference between selling prices of equivalent qualified and nonqualified properties. Using standard hedonic pricing models, we empirically test the impact of subsidized and nonsubsidized flood insurance on property values.

Capital Allocation and the Economic Recovery Tax Act of 1981

The obvious economic, although not political, solution to the overinvestment in owner-occupied housing in the 1970s would be to tax owner-occupied hous ing more heavily, thereby raising its user cost relative to that of industrial capital.

A theory and empirical test of land option pricing

Abstract Land option contracts are agreements whereby a landowner agrees to sell property at a stipulated exercise price to a potential buyer (developer) within a specified length of time. The option contract gives the developer time to coordinate the expertise of many professionals and obtain zoning changes and financing for the property, if necessary. In most cases the developer must either purchase the option to buy the proposed site or purchase the land outright before knowing whether the development is feasible. The landowners objective is to choose an exercise price (and hence an option premium) which will ensure that the developer will exercise the land option. In a bid-price model where developers are risk-neutral and landowners are risk-averse, the prediction is that land options are written with a zero or close to zero time premium. This paper is a test of this hypothesis and the results confirm the theoretical model.

Measurement of the Spreads Between Yields on Various Mortgage Contracts and Treasury Securities

Spreads between yields on different mortgage instruments and comparable maturity portfolios of Treasury securities have been computed and compared with quoted yields over the 1974-82 period for three different mortgage instruments: GNMA pass-throughs, FHLMC participation certificates, and conventional mortgage commitments. The methodology explicitly accounts for the expected timing of the payments on the mortgages and thus avoids the cash-flow timing problems noted in the literature.Between late 1978 and 1981, the computed spreads rose by 30 to 40 basis points relative to those customarily quoted (the internal rate of return on a mortgage, assuming a twelve-year life, less the yield on near-par ten-year Treasuries). This increase can be attributed to the rise in the level of interest rates (the compounding error in quoted mortgage yields is larger at higher levels of rates) and the change in the slope of the yield curve from flat to downward sloping (the twelve-year prepayment date assumed in the computation of quoted GNMA and FHLMC PC yields seems to be too long). Copyright American Real Estate and Urban Economics Association.

On Option-Pricing Models in Real Estate: A Critique

This paper considers the problems peculiar to options on real estate, because of the special set of institutional factors influencing real estate markets. It is intended to serve as a reply to Johnson and Wofford [15] as well as provide an overall critique of option-pricing models in a real estate context. Our major point is that a variety of real estate decisions, such as the abandonment decision, the option to refinance, or the option to exercise a contingent real estate purchase contract, may be modeled using option-pricing techniques. However, both the theoretical and institutional aspects of real estate markets must be taken into account in both developing and applying option models in a real estate context. Copyright American Real Estate and Urban Economics Association.

Horizontaland Vertical Inequities in the Capital Gains Taxation of Owner-Occupied Housing

This article examines the capital gains tax inequities of owner-occupied housing caused by below-market financing techniques. Several recent studies have shown that the capitalized financing premium associated with below-market financing arrangements tends to show that the homeowner purchased a more expensive home than he or she actually did. For homeowners who would otherwise downsize to lower-valued houses (and thus be liable for capital gains taxes), the higher reported purchase price lowers the taxable gain in the year of sale and creates potential horizontal and vertical inequities in the taxation of capital gains of owner-occupied. The evidence suggests that the aggregate capital gains tax savings from assumption financing techniques is likely to be around

The Effects of Occupational Licensing on Complaints Against Real Estate Agents

60 million per year.