Peter Linneman

The Impacts of Borrowing Constraints on Homeownership

This paper utilizes microdata to directly quantify the impact of mortgage underwriting criteria on individual homeownership propensities. To determine whether a family is constrained by these criteria, the optimal home purchase price is estimated. The results indicate that wealth and income constraints both reduce homeownership propensities, with a stronger impact for wealth constraints. Mortgage market innovations of the early 1980s seem to have reduced these effects. The research indicates, however, that even in well-developed capital markets, the presence of borrowing constraints adversely affects homeownership propensities. Copyright American Real Estate and Urban Economics Association.

Household migration: Theoretical and empirical results

A consumption theory of migration is developed which supplements the traditional job search models. Migration, seen as an equilibrating reaction to an initially non-optimal location, is analyzed using standard demand theory. When one groups goods into those that are traded between areas and those that are not (weather, racial discrimination, crime rates, etc.) it is clear that only changing demands for the non-traded goods will result in changing optimal locations (assuming supplies are fixed). Illustrating an increase in family income might lead to an increased demand for non-traded good ‘personal safety.’ This might result, for example, in the substitution (through migration) of a lower crime suburban neighborhood for a higher crime central city neighborhood. An empirically testable implication of the model is that the probability of migration should be positively related to changes in the absolute value of those exogenous variables which lead to altered demands for non-traded goods. This and other hypotheses were examined using cross-sectional data in a nonlinear maximum likelihood (prohibit) regression analysis. The results strongly support the model and its implications.

Some empirical results on the nature of the hedonic price function for the urban housing market

Abstract An attempt is made to develop a systematic statistical methodology for the analysis of the urban housing market The standard estimation procedures used for fitting hedonic price functions for the urban housing market are reviewed, and several potentially serious sources of bias are noted. An alternative estimator which capitalizes property values into flows and also searches for the appropriate functional form which avoids these biases is developed. The capitalization rate for owner-occupied housing in 1973 is found to be about 0.03. The magnitudes and seriousness of several of the estimation biases are examined within the context of inappropriate policy decisions which can result from the use of the standard estimators. The importance of neighborhood site characteristics in the determination of local site valuations is also examined and it is found that they explain between 15 and 50% of the standardized variation in site valuations. Further, it is found that these traits are capable of inducing valuation differentials as large as 100% between structurally identical sites.

Housing Affordability: Myth or Reality?:

The editors of Urban Studies Review have cially as a means of wealth accumulation) charged the authors with providing a synand privatisation . This paper focuses prithesis of major trends/changes in the themarily on housing affordability. The auoretical and empirical investigation of the thors rely primarily on the US experience housing market as well as with exploring to articulate the affordability issue, but the impacts of public policy interventions draw examples of public policy intervenon urban housing markets . Over the next 3 tions more broadly from other developed years, the authors will write a series of countries . three articles on current housing research in developed countries to examine some of the key housing issues in the US and the UK, drawing upon supplementary examples from other countries . The primary focus of housing research in developed countries has changed dramatically over the last four decades . The agenda that preoccupied researchers during the 1950s was concentrated on the inadequate supply of housing and the poor quality of the existing stock . When the problem of housing supply was ameliorated in the 1960s, the research focus shifted to improving the quality of available housing. In the US, the focus changed again during the 1960s and 1970s as neighbourhood decay and racial segregation and discrimination became major research topics . The issue of discrimination was broadened in the 1980s to include such protected classes as persons with disabilities, families with children and the elderly. Over the last decade, however, housing research in developed countries has been dominated by three issues : housing affordability, home-ownership (espe-

The demand for residence site characteristics

The analysis of residential site choice is the primary concern in urban economics. Research on this problem is deficient in that rigorous theoretical models concentrate almost exclusively on access to the Central Business District (CBD) in this decision process while empirical models have been specified in a manner that is inconsistent with standard demand theory. Although these models possess the power of simplicity, they are unable to explain the non-monotonic location patterns which characterize urban areas without resorting to ad hoc theorizing. This article develops and tests a model which is consistent with demand theory and is also capable of explaining non-monotonic location patterns. The hedonic rent function is seen as an intermediate step in the analysis of location which allows one to construct the complete data matrix necessary for the estimation of a set of demand functions for location-specific traits. The analytical importance of the functional form of this hedonic function is briefly noted. Finally, the empirical analysis notes the importance of children in determining residential preferences, with special attention being directed to the endogeneity of children with respect to the process of residential choice. The traditional location model is generally tested by regressing some transformation of the annual rental payments (or alternatively, property value), R, on access (or lack of access) to the city center, ACC, a vector of other locational traits, Z, income, I, and a race variable, MC,

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.

Dynamics of the Greenbelt Amenity Effect on the Land Market—The Case of Seoul's Greenbelt

Seouls greenbelt has been maintained for twenty years with little change, although Seoul has grown rapidly. Therefore, Seouls greenbelt is interesting to examine for the dynamic impacts of a greenbelt regulation in a growing city. These impacts are examined in this article which also exploits a unique time series of Seoul property values (1970-1989). The results show that the amenity value of Seouls greenbelt is quite high. However, the marginal value of greenbelt accessibility has been decreasing since 1980, in notable contrast to earlier years. A simple welfare analysis demonstrates that as the city grows, the greenbelt eventually loses its efficiency as a policy tool, even though earlier it may have achieved economic efficiency. Copyright American Real Estate and Urban Economics Association.

An economic analysis of the homeownership decision

Analysts of the homeownership decision have traditionally asserted that “owning makes much greater sense than renting” ([16], p. 359) for families in high tax brackets. However, empirical studies of homeownership propensities indicate that not all high-income families own nor do all low-income families rent. For example, Li ([8], p. 1081) notes that “a large number of studies” find that a variety of variables, such as “family size, age of the head, and race are generally found to be.. . determinants of homeownership” even when income or the marginal tax bracket are held constant. Previous attempts to explain why the marginal tax bracket is not a sufficient statistic for homeownership argue that people differ in their preferences for homeownership either because owning and renting are not perfect substitutes in consumption (see, for example [13, 141) or because of differences “in liquidity, mobility, ability at home repairs and home management, and simply peculiar circumstances” ([4], p. 14). This paper develops a general model of the homeownership decision and explores two alternative explanations of why the marginal tax bracket is not a sufficient statistic. This is accomplished by incorporating both transaction costs and housing market quality sorting into the model. Section II derives a simple parametric statement of the homeownership decision. The third section examines the special case which yields a homeownership decision rule which is comparable to existing models. An alternative special case is presented in the fourth section which incorporates consumer sorting across quality markets. It is demonstrated that the housing market may adjust until

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

Rent controls and rental housing quality: A note on the effects of New York City's old controls

Rent controls are used in many cities throughout the United States and many other countries. ’ There is a lengthy literature on the conceptual effects of rent controls. This is not surprising given the size of housing in the U.S. asset base and the political importance attached to homeownership and quality housing. It is surprising how little evidence there is on many of the supposed effects of rent controls. The evidence on these impacts is relatively slim for a variety of reasons. First, the data needed to document some of the predicted impacts are not good. For example, it is difficult to measure effective maintenance inputs, and it is costly to obtain any such data on a wide variety of buildings. Convincing ceteris paribus experiments are difficult to perform because there typically are many other factors for which it is hard to control. Additionally, the negative theoretical implications appear to be so clear that many economists may not have felt much need to quantify the extent of the damage. Nevertheless, there is some evidence on the influences of rent controls. From studies estimating the price elasticity of the supply of structures, economists have estimated the likely effect of rent controls on the supply of new structures in a city.’ Rydell et al. [lo] and Fallis and Smith [3] have