Joseph Gyourko

The Structure of Local Public Finance and the Quality of Life

Differences in local fiscal conditions generate compensating differentials across local land and labor markets just as we have long known amenities to do. Thus the fiscal climate affects the quality of life across metropolitan areas. We present new results showing that intercity fiscal differentials are nearly as important as amenity differentials in determining the quality of life across urban areas. The paper also investigates the sensitivity of the quality-of-life rankings with respect to assumptions about the nature of the marginal entrant. We estimate a random effects model to account for city-specific error components in the housing and wage regressions. Those results indicate that the standard errors of previous OLS-based quality-of-life rankings have been biased downward substantially. More encompassing data on city traits as well as superior controls for worker and housing quality are needed to increase the precision of quality-of-life estimates.

What Does the Stock Market Tell Us About Real Estate Returns

This paper analyzes the risks and returns of different types of real estate-related firms traded on the New York and American stock exchanges (NYSE and AMEX). We examine the relation between real estate stock portfolio returns and returns on a standard appraisal-based index, and find that lagged values of traded real estate portfolio returns can predict returns on the appraisal-based index after controlling for persistence in the appraisal series. The stock market reflects information about real estate markets that is later imbedded in infrequent property appraisals. Additional analysis suggests that the differences in the return and risk characteristics across different types of traded real estate firms can be explained in part by appealing to real estate market fundamentals relating to the degree of dependence of the real estate firm upon rental cash flows from existing buildings. These findings highlight the heterogeneity of securitized real estate-related firms. Copyright American Real Estate and Urban Economics Association.

Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices

In Manhattan and elsewhere, housing prices have soared over the 1990s. Rising incomes, lower interest rates, and other factors can explain the demand side of this increase, but some sluggishness on the supply of apartment buildings also is needed to account for the high and rising prices. In a market dominated by high rises, the marginal cost of supplying more space is reflected in the cost of adding an extra floor to any new building. Home building is a highly competitive industry with almost no natural barriers to entry, yet prices in Manhattan currently appear to be more than twice their supply costs. We argue that land use restrictions are the natural explanation of this gap. We also present evidence consistent with our hypothesis that regulation is constraining the supply of housing so that increased demand leads to much higher prices, not many more units, in a number of other high price housing markets across the country.

Urban Growth and Housing Supply

Cities are physical structures, but the modern literature on urban economic development rarely acknowledges that fact. The elasticity of housing supply helps determine the extent to which increases in productivity will create bigger cities or just higher paid workers and more expensive homes. In this paper, we present a simple model that provides a framework for doing empirical work that integrates the heterogeneity of housing supply into urban development. Empirical analysis yields results consistent with the implications of the model that differences in the nature of house supply across space are not only responsible for higher housing prices, but also affect how cities respond to increases in productivity.

An Analysis of Public and Private Sector Wages Allowing for Endogenous Choices of Both Government and Union Status

A general selection model is estimated in which workers select across four labor markets-private/nonunion, private/union, public/nonunion, and public/union. Evidence is found of positive selection bias in the private/nonunion sector and of negative selection bias in the public/union sector. Union wage differentials in the public and private sectors as well as public/private wage differentials are then calculated. Two different types of wage differentials are contrasted. We discuss when it is appropriate to use each type of differential.

Quality of life and environmental comparisons

Recent research into the urban quality of life (QOL) is reviewed and analyzed, with a special emphasis on the estimation of implicit prices of environmental attributes. New work has incorporated traditional concerns of urban theory into QOL analyses, as well as increased our understanding of specification bias problems in hedonic estimations. However, empirical research into the QOL finds itself at a crossroads, as the large city-specific error components in the underlying wage and housing expenditure hedonic specifications result in imprecise measurement of overall QOL values and rankings. Amassing higher quality databases to deal with this problem should be high on the agenda of those interested in this research program.

Owner-Occupied Homes, Income-Producing Properties, and REITs as Inflation Hedges: Empirical Findings

New evidence on the correlation patterns of various real estate returns with inflation is presented. Returns on a wide array of real estate, nonresidential as well as residential, are investigated. Stock and bond returns are also analyzed for comparison purposes. Extensive heterogeneity is found in real estate return correlations with inflation. Nonresidential property returns are most strongly positively correlated with inflation, although the appreciation in owner-occupied homes is also positively associated with inflation. However, REIT returns tend to be strongly negatively correlated with inflation. In this respect, they look more like traditional stocks and bonds than any other type of real estate. Finally, new evidence on return correlations with energy prices is also presented. Nonresidential real estate performs best here, too, although no real estate asset fully compensates investors for adverse energy price shocks.

CONSTRUCTION COSTS AND THE SUPPLY OF HOUSING STRUCTURE

ABSTRACT Construction costs account for the bulk of the price of new houses in most markets, but their study has been relatively neglected. We document that there are economically large differences in construction costs across U.S. housing markets. We also estimate a very elastic supply for physical structure; hence, differences in construction activity across markets do not explain the variation in costs. Supply shifters that collectively do account for differences in building costs include the extent of unionization within the construction sector, local wages, local topography in terms of the presence of high hills and mountains, and the local regulatory environment.

Housing Busts and Household Mobility

Using two decades of American Housing Survey data from 1985 to 2005, we estimate the influence of negative home equity and rising mortgage interest rates on household mobility. We find that both factors lead to lower, not higher, mobility rates over time. The effects are economically large -- mobility is almost 50 percent lower for owners with negative equity in their homes. This finding does not imply that current concerns over defaults and homeowners having to relocate are entirely misplaced. It does indicate that, in the past, the mortgage lock-in effects of these two factors were dominant over time. Policymakers may wish to begin considering the consequences of mortgage lock-in and reduced household mobility because they are quite different from the consequences associated with default and higher mobility.

Equity and efficiency aspects of rent control: An empirical study of New York City

Modem rent controls arose during World War II to deal with the war-related influx into urban areas. Since then, numerous cities have either considered, adopted, or eliminated rent controls. The policy debate about the desirability of rent controls continues unabated and becomes particularly acute when high inflation rates drive up rents rapidly. Rent controls have both efficiency and distributional consequences. The economics literature has produced theoretical insights about the inefficiencies created by rent controls.’ This literature is frequently cited by opponents of rent controls who argue that the efficiency costs of rent controls are manifested in a decaying housing stock and altered mobility patterns. Proponents of rent control invariably argue that the distributional impacts of rent controls outweigh efficiency costs. Considering the large number of cities that have investigated or adopted rent controls, relatively little empirical research documents either the efficiency or distributional effects of rent controls. The most notable exceptions are the studies of New York City by De Salvo [3], Olsen [13], and Roistacher [15], and the studies of Los Angeles by Rydell et al. [16], and Fallis and Smith [4]. More recently, Linneman [lo] and Marks [12] have further examined ramifications of rent controls in New York City and Vancouver. This paper fills some gaps in knowledge about the effects of rent controls. We examine rent controls in New York City in 1968, using the New York City Housing and Vacancy Survey.2 The paper extends the work of Olsen [13], although there are important differences in both the questions addressed and methodology used. This paper examines in detail the distributional consequences of rent controls for New York City residents (both