Philadelphia, PA: University of Pennsylvania Press, forthcoming.
Philadelphia, PA: University of Pennsylvania Press, 2016, 274 pages.
Philadelphia, PA: University of Pennsylvania Press, 2016, 256 pages.
Philadelphia, PA: University of Pennsylvania Press, 2016, 105 pages.
KDI Series in Policy and Development
Real Estate Economics, Vol. 43, Issue 1, Spring 2015, 241-270.
Journal of Real Estate Literature, Vol. 22 Issue 1, January 2014, 23-56.
Explorations in Economic History, Vol. 50, No. 3, July 2013, 368-386
Harvard Business Law Review, Vol. 3, Summer 2013, 83-118.
Housing Policy Debate, Vol. 23 No. 1, 2013, p. 5-27
Asset bubbles come and go. Only the housing bubble, however, brought the economy to its knees. Why? What makes housing uniquely a cause of macroeconomic risk? This article examines the workings of the housing market as well as theories and empirical evidence about the housing bubble. It explains why housing is a particular source of macroeconomic risk and how changes in the housing finance channel were the critical element in the formation of the bubble.
Atlantic Economic Journal, Vol. 40, 2012, p. 273
Mounting foreclosures and recent disclosures of abusive lending practices have led many states to adopt new anti-predatory lending laws. Researchers have examined the impact of such laws on credit flows and the cost of credit. This research extends the literature by examining if the market responded to these laws by substituting different mortgage products for those restricted by anti-predatory lending provisions. The evidence indicates that the new laws were effective in restricting loans with targeted characteristics and that the market substituted other product types to maintain affordability in the face of these restrictions.
Yale Journal on Regulations, Vol. 29,No.1, Winter 2012, p.155-180
Private risk capital has virtually disappeared from the U.S. housing finance market since the market’s collapse in 2008. This Article argues that private risk capital is unlikely to return on any scale until the informational problems in housing finance are resolved so that investors can accurately gauge and price the risks they assume. The Dodd-Frank Act represents a first step in reforming the U.S. housing finance. It takes a multi-layered approach, regulating both loan origination and securitization. Dodd-Frank’s reforms, however, fail to adequately address the opacity of credit risk information in mortgage markets and thus are insufficient for the restoration of private risk capital. The Article argues that Dodd-Frank reforms like “skin-in-the-game” credit risk retention fail to solve the informational problems in the housing finance market, as they merely replace one informational opacity with another. Instead, the Article argues, it is necessary to institute structural changes in the housing finance market, particularly the standardization of mortgage securitization, that force the production of information necessary for accurate risk-pricing.
Georgetown Law Journal, Vol. 100, No.4, April 2012, p. 1177-1258)
There is little consensus as to the cause of the housing bubble that precipitated the financial crisis of 2008. Numerous explanations exist: misguided monetary policy; a global savings surplus; government policies encouraging affordable homeownership; irrational consumer expectations of rising housing prices; inelastic housing supply. None of these explanations, however, is capable of fully explaining the housing bubble. This Article posits a new explanation for the housing bubble. First, it demonstrates that the bubble was a supply-side phenomenon attributable to an excess of mispriced mortgage finance: mortgage-finance spreads declined and volume increased, even as risk increased — a confluence attributable only to an oversupply of mortgage finance. Second, it explains the mortgage-finance supply glut as resulting from the failure of markets to price risk correctly due to the complexity, opacity, and heterogeneity of the unregulated private-label mortgage-backed securities (PLS) that began to dominate the market in 2004. The rise of PLS exacerbated informational asymmetries between the financial institutions that intermediate mortgage finance and PLS investors. These intermediation agents exploited informational asymmetries to encourage overinvestment in PLS that boosted the financial intermediaries’ volume-based profits and enabled borrowers to bid up housing prices. This Article proposes the standardization of PLS as an information-forcing device. Reducing the complexity and heterogeneity of PLS would facilitate accurate risk pricing, which is necessary to rebuild a sustainable, stable housing-finance market.
American Economic Journal: Economic Policy, Vol.3, No.2m May 2011m p. 169-188
What impact does immigration have on neighborhood dynamics? Within metropolitan areas, we find that housing values have grown relatively more slowly in neighborhoods of immigrant settlement. We propose three nonexclusive explanations: changes in housing quality, reverse causality, or the hypothesis that natives find immigrant neighbors relatively less attractive (native flight). To instrument for the actual number of new immigrants, we deploy a geographic diffusion model that predicts the number of new immigrants in a neighborhood using lagged densities of the foreign-born in surrounding neighborhoods. Subject to the validity of our instruments, the evidence is consistent with a causal interpretation of an impact from growing immigration density to native flight and relatively slower housing price appreciation. Further evidence indicates that these results may be driven more by the demand for residential segregation based on race and education than by foreignness per se.
Real Estate Economics, Vol. 38, No. 1, Spring 2011, p.1-17
This article establishes a theoretical and empirical link between the use of aggressive mortgage lending instruments, such as interest-only, negative-amortization or subprime mortgages, and the underlying house prices. Such instruments, which come into existence through innovation or financial deregulation, allow more borrowing than otherwise would occur in previously affordability-constrained markets. Within the context of a model with an endogenous rent-buy decision, we demonstrate that the supply of aggressive lending instruments temporarily increases the asset prices in the underlying market because agents find it more attractive to own or because their borrowing constraint is relaxed, or both. This result implies that the availability of aggressive mortgage lending instruments magnifies the real estate cycle and the effects of fundamental demand shocks. We empirically confirm the predictions of the model using recent subprime origination experience. In particular, we find that regions that receive a high concentration of aggressive lending instruments experience larger price increases and subsequent declines than areas with low concentration of such instruments. This result holds in the presence of various controls and instrumental variables.
Journal of Housing Economics, Vol. 19, No.3, September 2010, p. 219-232
We analyze the relationship between underwriting standards and low-income homeownership rates using the 1979 National Longitudinal Survey of Youth. The survey respondents are a nationally representative sample of Americans mostly 40-48 years of age as of the most recent wave of the survey in 2004. Past research has identified credit impairment, wealth constraints, and income constraints as finance-related barriers to homeownership. Using a model of tenure choice, we find that absent all three constraints, the homeownership rate of low-income households in our sample would increase from 52.5 to 59.3 percent. Approximately half of this differential is attributable to households with impaired credit and those with ‘thin-file status,’ the lack of a substantial credit history.
International Real Estate Review, Vol. 13, No.2, 2010, p. 218-237
The present period of financial instability is also likely to become known as the end of an era, an era of economic calm and of policy consensus on how to maintain market stability. After World War II, the federal government operated on the Keynesian principles that the right mix of spending, regulation, and interest rates could tame economic cycles and eliminate surges of unemployment. In this period, now known as the Great Moderation, we assumed we knew how to prevent economic crises, such as the recurrence of the Great Depression. However, it is clear that those principles were erroneous as the economy has entered a lesser, but still severe downturn, the Great Recession. This paper looks at the sources of the ongoing economic crisis and points to the unique role in its origins of real estate asset bubbles and mispriced credit, not only in the origin of this crisis but of many financial crises. An analysis of the data points to the role of mispriced mortgage backed securities (MBS) in the spread of aggressive mortgage products and the unwarranted price speculation that resulted in massive foreclosures. In turn, the paper addresses the source of mispriced risk in MBS as incomplete markets in real estate and non-tradability of MBS and related securities which ultimately led to the collapse of financial system, threatening global economic health. The paper also suggests corrective measures that can and should be taken to assist the short and long term recovery.
Yale Journal on Regulations, Vol.26, No.1, Winter 2009, p. 445-455
With private-label mortgage-backed securities (MBS), investors bore default risk; while this risk should have been priced, as systemic risk grew, the pricing of risk did not increase. This paper attempts to explain why this happened. We point to market institutions’ incentive misalignments that cause asset prices to rise above fundamentals, producing systemic risk. The model attributes the asset price inflation to the provision of underpriced credit as lending institutions misprice risk to gain market share. The resulting asset price inflation itself then generates further expansion of underpriced credit.
Connecticut Law Review, Vol. 41, May 2009, p. 1327-1375
Without regulation, securitization allowed mortgage industry actors to gain fees and to put off risks. During the housing boom, the ability to pass off risk allowed lenders and securitizers to compete for market share by lowering their lending standards, which activated more borrowing. Lenders who did not join in the easing of lending standards were crowded out of the market. Artificially low risk premia caused the asset price of houses to go up, leading to an asset bubble and breeding fraud. The consequences of lax lending were thereby covered up. The market might have corrected this problem if investors had been able to express their negative views by short selling mortgage-backed securities, thereby allowing fundamental market value to be achieved. However, the one instrument that could have been used to short sell mortgage-backed securities – the credit default swap – was also infected with underpricing due to lack of minimum capital requirements and regulation to facilitate transparent pricing. As a result, there was no opportunity for short selling in the private-label securitization market. The authors propose countercyclical regulation to prevent a race to the bottom at the height of the business cycle.
Journal of Real Estate Finance and Economics, Vol. 36, No.2, Summer 2008, 231-239
In this paper we offer direct evidence that financial intermediation does impact underlying asset markets. We develop a specific observable symptom of a banking system that underprices the put option imbedded in non-recourse asset-backed lending. Using a dataset for 19 countries and over 500 real estate investment trusts, we find that, following a negative demand shock, the “underpricing” economies experience far deeper asset market crashes than economies in which the put option is correctly priced.
Real Estate Economics, Vol.36, No.2, Summer, 2008, 213-239
We investigate the correlation between curb-side tree plantings and housing price movements in Philadelphia from 1998 to 2003, comparing two programs, one by the Philadelphia Horticultural Society that requires block-group effort that focuses on lowincome neighbourhoods and the other by the Fairmount Park Commission that is individual-based without specific target areas. A 7 to 11 percent price differential is identified within 4000ft of the Fairmount tree plantings. We argue that this is largely driven by either social capital creation or a signaling mechanism, on the top of an intrinsic tree value (around 2 percent). Findings using the PHS tree program suggest that development of social capital or environmentally-conscious behavior might be a less important channel. Any positive changes brought by the PHS tree plantings were not detected with sufficient statistical power.
Journal of Economics and Business, Vol. 60, No. 1-2, January/February 2008, 47-66
Subprime mortgage lending has grown rapidly in recent years and with it, so have concerns about predatory lending. In response to evidence of predatory lending, most states have enacted new laws or expanded existing laws to address abuses in the subprime home loan market. The effect of these statutes is a matter of debate. This paper seeks to improve the understanding of this increasingly important issue and pays particular attention to the role that legal enforcement mechanisms play in this context. Our results are consistent with the view that anti-predatory lending laws influence subprime lending markets and that disaggregating the details of the overall legal framework into its component parts is essential for understanding subprime market dynamics. The restrictions, coverage, and enforcement components all have significant relationships with subprime market outcomes, with the coverage relationship found to be broadly consistent with the reverse lemons hypothesis put forward by Ho and Pennington-Cross (2007). The results also suggest that the newer mini-HOEPA laws have had an impact on the subprime market above and beyond the older preexisting laws, particularly for subprime originations. Broader coverage through these new laws is associated with higher origination likelihoods, while increased restrictions through the mini-HOEPA laws are associated with lower origination propensities.
Real Estate Economics, Vol. 34, No.4, Winter 2006, 479-496
Journal of Economic Perspectives, Vol. 19, No.4, Fall 2005, 93-114
Home mortgages have loomed continually larger in the financial situation of American households. In 1949, mortgage debt was equal to 20 percent of total household income; by 1979, it had risen to 46 percent of income; by 2001, 73 percent of income (Bernstein, Boushey and Mishel, 2003). Similarly, mortgage debt was 15 percent of household assets in 1949, but rose to 28 percent of household assets by 1979 and 41 percent of household assets by 2001. This enormous growth of American home mortgages, as shown in Figure 1 (as a percentage of GDP), has been accompanied by a transformation in their form such that American mortgages are now distinctively different from mortgages in the rest of the world. In addition, the growth in mortgage debt outstanding in the United States has closely tracked the mortgage market’s increased reliance on securitization (Cho, 2004). The structure of the modern American mortgage has evolved over time. We begin by describing this historical evolution. The U.S. mortgage before the 1930s would be nearly unrecognizable today: it featured variable interest rates, high down payments and short maturities. Before the Great Depression, homeowners typically renegotiated their loans every year. We next compare the form of U.S. home mortgages today with those in other countries. The U.S. mortgage provides many more options to borrowers than are commonly provided elsewhere: American homebuyers can choose whether to pay a fixed or floating rate of interest; they can lock in their interest rate in between the time they apply for the mortgage and the time they purchase their house; they can choose the time at which the mortgage rate resets; they can choose the term and the amortization period; they can prepay freely; and they can generally borrow against home equity freely. They can also obtain home mortgages at attractive terms with very low down payments. We discuss the nature of the U.S. government intervention in home mortgage markets that has led to the specific choices available to American homebuyers. We believe that the unique characteristics of the U.S. mortgage provide substantial benefits for American homeowners and the overall stability of the economy.
Journal of Financial Stability, Vol. 1, Issue 3, April 2005
Journal of Real Estate Literature, Vol. 13, No.2, 2005
Journal of Asian Economics, Vol. 15.6, November-December, 2004
This paper investigates the Asian real estate price run-up and collapse in the 1990s. We identify financial intermediaries’ underpricing of the put option imbedded in non-recourse mortgage loans as a potential cause for the observed price behavior. This underpricing is due to behavioral causes (lender optimism and disaster myopia) and/or rational response of lenders to market incentives (agency conflicts, deposit insurance, or limited liability of bank shareholders). The empirical evidence suggests that underpricing occurred in Thailand, Malaysia, and Indonesia. Consequently, these countries experienced a more severe market crash than Hong Kong and Singapore, where underpricing was kept under control by strong government intervention and/or more appropriate incentive mechanisms.
Housing Policy Debate, Vol.15, Issue 3, 2005
This paper estimates, for 7 cities, a model of prime versus subprime allocation of loans in 1997 and 2002 based on both individual loan and neighborhood attributes. The paper is directly interested in the effect of neighborhood racial and ethnic composition on the likelihood of receiving a subprime loan. The paper also allows for interaction of borrower race and ethnicity with neighborhood attributes. A unique feature of the paper is that it provides additional neighborhood controls for the aggregate level of credit risk and the neighborhood level of equity risk. The paper finds some evidence for tightening loan standards over the 5-year period in the subprime market. In both years, even with risk controls, the minority share of neighborhood is consistently significant and positively related to subprime share. Furthermore, neighborhood education level is consistently significant and negatively related to subprime lending.
We investigate the market prices of assets in fixed supply whose purchase is typically financed through non-recourse loans. The largest and most common asset in this category is real estate. We demonstrate two features of such markets: Lenders’ underpricing of the put option contained in non-recourse loans leads to inflated asset prices within efficient markets, and lenders with short-term horizons have incentives to underprice the put option. These results hold when participants in both equity and debt markets are rational. The model also allows for management compensation that is aligned with maximizing bank shareholders’ value. Using real estate transaction data we find empirical evidence consistent with the predictions of the model.
Journal of Real Estate Finance and Economics, Vol. 29, Nol.4, December 2004, 393-410
Subprime lending in the residential mortgage market, characterized by relatively high credit risk and interest rates or fees, has developed over the past decade into a prominent segment of the market (Temkin (2000)). Recent research indicates that there is geographical concentration of subprime mortgages in Census tracts where there are high concentrations of low-income and minority households. The growth in subprime lending represents an expansion in the supply of mortgage credit among households who do not meet prime market underwriting standards. Nonetheless, its apparent concentration in minority and lower income neighborhoods has generated concerns that these households may not be obtaining equal opportunity in the prime mortgage market. Such lending may undermine revitalization to the extent that it is associated with so-called predatory practices.
Journal of Housing Economics, Vol.12, Issue 4, December 2003, 273-356
In this study, we test for the role of credit quality as a factor in limiting access to homeownership. While micro-level household data on wealth and income are available for assessing income- and wealth-based constraints to homeownership, lack of data on household credit ratings has precluded evaluation of credit quality as a potential barrier to homeownership. The study, for the first time, measures the relative importance of credit-, income-, and wealth-based constraints and estimates how the effects of these constraints have evolved over the past decade. The results show that financing constraints continue to have an important impact on potential homebuyers. The wealth constraint has the largest impact, although its importance declined substantially during the 1990s. Credit quality based constraints have become more important barriers to homeownership during the 1990s, mostly reflecting an increase in the number of households with impaired credit quality. Thus, both wealth and credit constraints persist as barriers to the attainment of homeownership.
Texas Law Review, Vol. 88, Issue 2, December 2003, 413-419
Over the past decade, the growth of the secondary market has produced an increased differentiation in the pricing of available capital for mortgage lending, as well as in the brokers and lenders involved in the distribution of mortgages. A major outcome of this shift is the emergence of subprime lenders. This paper provides commentary on the views of price revelation and efficient mortgage markets.
Regional Science and Urban Economics, Vol. 33, Issue 5, September 2003, 517-556
The rate of homeownership among African-American households is considerably lower than white households in American urban areas. This paper examines whether racial differences in residential location outcomes are among the factors that contribute to the large racial differences in homeownership rates in major US metropolitan areas. Based on the 1985 metropolitan sample of the American Housing Survey for Philadelphia, the paper does not find any evidence that existing racial differences in residential location in Philadelphia decrease the homeownership rate among African Americans. Rather, the empirical evidence suggests that African-American residential location outcomes are associated with lower than expected racial differences in homeownership. Therefore, after controlling for neighborhood, racial differences in homeownership are larger than originally believed, and the ability of racial differences in endowments to explain homeownership differences is more limited.
Journal of Housing Economics, Vol. 12, No.1, March 2003, 29-59
In this study, we develop and test a methodology to assess the impact of affordable lending efforts on homeownership rates. More narrowly, we examine the impact of using flexible underwriting guidelines, primarily changes in the down payment and housing burden requirements, on the affordability and homeownership propensities of targeted populations and geographic areas. The impacts of changing these underwriting guidelines are compared with those resulting from lower borrowing costs (interest rates). A variation of the methodology first proposed by Wachter et al. (1996) is used in the analysis. We use the 1995 American Housing Survey (AHS) national core in the analysis. The findings indicate that affordable lending efforts are likely to increase homeownership opportunities for underserved populations, but that impacts may not be felt equally by all groups. Under most affordable products, the impacts on all households, recent movers and central city households are smaller than for other households. The recently introduced affordable products which permit the 3% down payment to come from non-borrower sources, e.g., Freddie Mac’s Alt 97, has the largest impact on the homeownership propensities of all underserved groups, including a 27.1% increase in the relative probability of homeownership for young households, a 21.0% increase for blacks, and a 15.0% increase for central city residents. Consistently, changes in underwriting guidelines are found to have greater impacts than changes in the costs of borrowing for all groups.
Journal of Affordable Housing and Community Development Law, Vol. 12, No.1, Winter 2002, 173-187
Cityscape: A Journal of Policy Development and Research, Vol. 6, No. 1, 2002, 9-84.
Cityscape: A Journal of Policy Development and Research, Vol.6, No 1, 2002, 9-84
This study analyzes the government-sponsored enterprises’ (GSEs’) mortgage purchase patterns over the period from 1993 through 1996 and focuses on their share of the secondary mortgage market in specific market segments identified by borrower income, borrower race, and other indicators of policy interest. Using a database on GSE loan purchases from HUD’s Public Use Database (PUDB) combined with data on non-GSE loan purchases reported under the Home Mortgage Disclosure Act in 44 of the largest metropolitan areas in the country, we provide a picture of GSE mortgage purchase patterns in a variety of urban areas. We report a series of cross-tabulations estimating the market share of each GSE by borrower and neighborhood characteristics, coupled with a logistic regression analysis on the influence of specific borrower and neighborhood characteristics on the probability that a given loan will be purchased by one of the GSEs. These analyses suggest that during the period covered by the study, Fannie Mae and Freddie Mac provided a lower proportion of funding for mortgage lending to lower income and minority borrowers than to higher income or White borrowers. The GSEs also had lower market shares in lower income neighborhoods than in higher income neighborhoods, in central-city areas compared to suburban areas, and in neighborhoods that are geographically targeted according to HUD’s mandates for GSE loan purchase activity compared to nontargeted neighborhoods. The logistic regressions further suggest that the GSEs were more likely to purchase loans in racially mixed tracts than in predominantly White tracts. Finally, we focus on spatial differences in GSE mortgage purchase patterns using clustering methods and find that GSE purchases differ in all included California metropolitan areas (along with Boston, Newark, New York, and Washington) compared with the rest of the metropolitan statistical areas (MSAs) studied. Loans made to borrowers with relatively high loan balances were less likely to be purchased by the GSEs in the California-plus metropolitan areas than in the remaining metropolitan areas. This may reflect the relatively high housing prices in the California-plus metropolitan areas. Because GSEs are prohibited from purchasing jumbo loans that exceed a conforming loan limit, they can be expected, other things being equal, to have a smaller market share in areas with higher housing prices because a larger share of loans can be expected to exceed the loan limit. Moreover, loans originated to minority borrowers are more likely to be purchased by the GSEs in the California-plus MSAs, a difference that may be attributable in part to the different mix of minority borrowers in the California MSAs, which have higher population proportions of Asian Americans compared to African Americans.
Journal of Real Estate Finance and Economics, Vol. 23, Issue 1, 2001
This paper examines anisotropic spatial autocorrelation in single-family house prices and in hedonic house price equation residuals using a spherical semivariogram and transactions data for one county in the Philadelphia, Pennsylvania MSA. Isotropic semivariograms model spatial relationships as a function of the distance separating properties in space. Anisotropic semivariograms model spatial relationships as a function of both the distance and the direction separating observations in space. The goals of this paper are: (1) to determine whether there is spatial autocorrelation in hedonic house price equation residuals; and (2) to empirically examine the validity of the isotropy assumption. We estimate the parameters of spherical semivariograms for house prices and for hedonic house price equation residuals for 21 housing submarkets within Montgomery County, Pennsylvania. These housing submarkets are constructed by dividing the county into 21 groupings of economically similar adjacent census tracts. Census tracts are grouped according to 1990 census tract median house prices and according to characteristics of the housing stock. We fit the residuals of each submarket hedonic house price equation to both isotropic and anisotropic sepherical semivariograms. We find evidence of spatial autocorrelation in the hedonic residuals in spite of a very elaborate hedonic specification. Additionally, we have determined that, in some submarkets, the spatial autocorrelation in the hedonic residuals is anisotropic rather than isotropic. The empirical results suggest that the spatial autocorrelation in Montgomery County single-family house price equation residuals is anisotropic in submarkets where residents typically commmute to a regional or local Central Businss District (CBD).
Cityscape: A Journal of Policy Development and Research, Vol.5, Issue 3, 2001
Cityscape: A Journal of Policy Development and Research, Vol. 5, Issue 2, 2001, 5-19
The 1990s were a tumultuous time for Federal housing policy. The decade began with deep divisions in the housing community over how to deliver housing assistance. Federal budget cuts in the mid-1990s, for the first time in recent history, essentially froze the number of households that received housing assistance. At roughly the same time, the continuing existence of HUD was itself in doubt, as the New York Times Magazine in 1995 published its lead article proclaiming “The Year That Housing Died.” As the new millennium begins, things have changed dramatically. Not only is Congress no longer seriously questioning whether to disband HUD, but in response to a record-setting economic expansion and internal reforms within the agency, Congress has substantially increased HUD ‘s budget. In marked contrast to the beginning of the last decade, remarkable consensus exists among housing policymakers and analysts over the future direction of housing policy. In this article, we explore this emerging consensus and set forth our views regarding the principles that should guide housing policy over the next decade.
Journal of Real Estate Finance and Economics, Vol. 20, Issue 2, 2000
The real estate industry has recently witnessed significant and pervasive consolidation with further growth and consolidation generally viewed as a foregone conclusion. For example, between 1990 and 1997, growth in average net real estate investments by large REITs outpaced growth in average net real estate investments by small REITs by 13 percent. However, no systematic study of the benefits of this consolidation exists. This research studies whether or not there are gains to consolidation due to economies of scale from size, brand imaging, and informational gains from geographic specialization. Our sample consists of 41 multifamily equity REITs, for whom finanical and property level data are available in the SNL REIT Database. Using this data, we construct ‘shadow’ portfolios that mimic each REIT’s exposure to changes in local market conditions. Our results show no size economies, that branding in real estate is allusive, and that geographic specialization, in agreement with Gyourko and Nelling (1993), has no significant benefit.
Real Estate Economics, Vol. 27, No.1, 1999
This study examines the performance of home purchase loans originated by a major depository institution in Philadelphia under a flexible lending program between 1988 and 1994. We examine long-term delinquency in relation to neighborhood housing market conditions, borrower credit history scores, and other factors. We find that likelihood of delinquency declines with the level of neighborhood housing market activity. Also, likelihood of delinquency is greater for borrowers with low credit history scores and those with high ratios of housing expense to income, and when the property is unusually expensive for the neighborhood where it is located.
Journal of Housing Economics, Vol 8, No. 2, 1999, 63-89
This paper presents new evidence on the determinants of the large disparities in home ownership by race in the U.S. Consistent with results first reported by P. Linneman and S. M. Wachter (1989,AREOFA J.7, No. 4, 389–402), we find noceteris paribusracial differences in ownership rates among white and minority households who possess sufficient wealth to meet down payment and closing cost requirements associated with standard mortgage underwriting criteria. However, substantial racial differences among wealth-constrained households exist, with constrained whites owning at higher rates than observationally equivalent minority households. Because minorities are disproportionately constrained by wealth-related underwriting standards, these differentials apply to roughly one-third of the white households in our samples and well over one-half of the minority sample. A multinomial model that treats central city versus suburban location as a choice variable in addition to tenure status is also estimated. The results show that even among households unconstrained by wealth-related underwriting considerations, minorities are much more likely than whites to own in central city locations. Thus, while controlling for wealth constraint status does eliminate tenure choice differences among the unconstrained, location differences remain for this group. They also are present among constrained households. Given the disparate fortunes of central city and suburban land markets in many metropolitan areas, this racial location pattern of ownership may have important long-run impacts on wealth distribution by race
Housing Policy Debate, Vol. 10, Issue 1, 1998, 75-93
Prior research has found negative impacts of public housing on neighborhood quality. Few studies have examined the impact of public and other assisted housing programs on real estate prices, particularly differential impact by program type. In this study, federally assisted housing units by program type are aggregated by 1/8‐ or 1/4‐mile radii around individual property sales and regressed on sales prices from 1989 through 1991, controlling for area demographic, housing, and amenity variables. Results show that public housing developments exert a modest negative impact on property values. Scattered‐site public housing and units rented with Section 8 certificates and vouchers have slight negative impacts. Federal Housing Administration—assisted units, public housing homeownership program units, and Section 8 New Construction and Rehabilitation units have modest positive impacts. Low‐Income Housing Tax Credit sites have a slight negative effect. Results suggest that homeownership programs and new construction/rehabilitation programs have a more positive impact on property values.
Journal of Housing Economics, Vol 7, Issue 4, 1998, 287-303
Landlord abandonment of rental housing has affected many American cities since the 1960’s. Because of data limitations, there have been few empirical analyses of the determinants of housing abandonment. In this paper, we use a rich database that contains information on individual residential properties in New York City to estimate a reduced form model of owner abandonment. We model an owner’s decision to abandon his or her property as being similar to an investor’s decision to exercise a put option on a financial instrument. When required to pay delinquent taxes, a wealth-maximizing landlord has an incentive to cede ownership of his or her residential property when the value of all outstanding liens exceeds the property’s market value. Estimates from the model are used to examine whether empirical evidence supports this option model of abandonment.
Urban Studies, Vol. 35, No. 1, 1998
Cities in the US have become home to an increasing concentration of poor households, disproportionately composed of racial and ethnic minorities. In the US, poor and minority populations are overrepresented in public housing, mostly located in central cities. Racial and ethnic minorities in American public housing are, for the most part, composed of native-born households whereas in Europe they are more likely to be foreign-born. After a description of this concentration of poor and minority populations in public housing, we examine the effect of public housing on neighbourhood poverty rates in central cities. We construct a longitudinal database (1950-90) for four large cities-Boston, Cleveland, Detroit and Philadelphia—and examine the relationship between the location of public housing and changes in neighbourhood poverty rates. We find that in each city, one or more of the variables relating to the existence of public housing is significantly related to increases in neighbourhood poverty rates in succeeding decades.
Journal of Urban Economics, Vol 44. 1998
(with William W. Goeztmann and Matthew Spiegel) Abstract
Cityscape: A Journal of Policy Development and Research, Vol. 3, No.3, 1998, 193-204
This article addresses the issue of how closely the fortunes of suburbs are tied to the fortunes of the central city. We develop housing price indices for most of the zip codes in California and use them in a clustering procedure to determine whether city and suburban housing markets naturally aggregate or move separately. We find that central cities tend to group with their suburbs, suggesting that the housing markets of cities and suburbs are closely linked.
Univesity of Connecticut Law Review, Vol. 30.1, Fall 1997, 157-210
Journal of Housing Economics, Vol 6.4, 1997
This study has two main objectives. First, we estimate various alternative specifications of the tenure choice model with borrowing constraint variables, originally put forth by Linneman and Wachter, using a more recent sample of the Survey of Consumer Finance. Second, we simulate effects of policy changes governing constraints and changes in mortgage interest rates, both on households’ owning decisions and on the aggregate homeownership rate. While the impact of constraints has been demonstrated in previous studies, our research provides the first microsimulation estimates of the impact for aggregate homeownership rates for the entire U.S. population.
Journal of Housing Research, Vol 8.2, 1997
In this paper we analyze the factors that affect the tenure choice of young adults, highlighting the impact of mortgage lender imposed borrowing constraints. The data set is a panel of youth age 20-33 for the years 1985-90. Our methods differ from most prior studies in many ways including consideration of possible sample selection bias, a richer model of the stochastic error structure, better measurement of which households are bound by borrowing constraints, and a fuller consideration of the endogeneity of wealth and income. Once all changes are implemented, we find ownership tendencies to be quite sensitive to economic variables. Specifically, potential earnings, the relative cost of owning a home, and especially borrowing constraints affect the tendency to own a home. In our sample of youth, 37% of households are constrained even after choosing their loan-to-value ratio to minimize the impact of the separate wealth and income requirements. The constraints reduce the probability of ownership of these households by 10 to 20 percentage points (a third to a half) depending on the particular characteristics of the household.
Journal of Real Estate Finance and Economics Vol. 14.1/2, 1997, 173-188
This article examines the characteristics and price behavior of repeatedly transacted properties. Using data from four U.S. counties, we estimate hedonic price models of properties grouped by transaction frequency, and compare estimated standard deviations and estimated appreciation rates by group. For each of four counties studied, we find that estimated house price appreciation is systematically higher among properties that transact more frequently. One possible explanation for this result is that purchasers make property improvements that are not adequately reflected in the available data We also find that estimated standard deviations of the disturbance term show a marked decrease as the frequency of transaction increases. Since frequently transacting properties are not found to be systematically more homogeneous than seldomly transacting properties, we do not attribute this to any increase in homogeneity for frequently transacting properties, but rather to the length of time elapsed between transactions of properties. The findings of this article suggest that repeat-sales price models may need to be adjusted to account for cross-sectional variation in transaction probabilities—that is, the selectivity of the subsample of properties that transacted (or transacted repeatedly) during any finite study period.
Journal of Financial Services Research, Vol. 11.1/2 1997, 205-208
Housing Policy Debate, Vol. 7.2, 1996, 327-365
This study investigates hypotheses regarding the association of census tract variables with the risk for homelessness. We used prior address information reported by families entering emergency shelters in two large U.S. cities to characterize the nature ofthat distribution. Three dense clusters of homeless origins were found in Philadelphia and three in New York City, accounting for 67 percent and 61 percent of shelter admissions and revealing that homeless families’ prior addresses are more highly concentrated than the poverty distribution in both cities. The rate of shelter admission is strongly and positively related to the concentration of poor, African‐American, and female‐headed households with young children in a neighborhood. It is also correlated with fewer youth, elderly, and immigrants. Such areas have higher rates of unemployment and labor force nonpartici‐pation, more housing crowding, more abandonment, higher rates of vacancy, and higher rent‐to‐income ratios than other areas.
Journal of Housing Research, Vol. 7.1, 1996, 33-57
This article describes the wealth accumulation of American youth and relates it to their eventual housing choices. A data set is compiled for youth ages 20 to 33 for the years 1985 through 1990. We construct wealth profiles for each household and compare these profiles across different patterns of labor supply, marriage, fertility, gender, education, race/ethnicity, and tenure choic. We find that renters’ wealth accumulates rapidly in the year before and year of first homeownership. The factors related to this increase are marriage, increased labor supply by married women, and gifts and inheritance. Of particular interest is the finding of an inverse U-shaped relationship between the local price of housing and middle- and upper-income renters’ wealth. However, there is no relationship between these variables for low-income renters. One difference between these groups is that low-income renters have no tax advantage once they become homeowners.
Housing Policy Debate, Vol 7.1, 1996 175-200
Homeownership counseling encompasses several educational activities. Early approaches focused on reducing the risk of default and foreclosure among participants in government-assisted mortgage programs, but more recent approaches have focuesd on increasing homewonership opportunities among low-income and minority households. Unfortunately, little is known about the effectiveness of these approaches in terms of the number of new homeowners and the mitigation of default risk. To address that gap, this article presents a theoretical and methodological framework to evaluate counseling efforts. A successful counseling program is defined as one that assists a household with a low long-term probability of ownership in buying a home and reducing its default risk. We conced that the methodological requirements for evaluating counseling are somewhat restrictive. However, if we establish an evaluation procedure using these goals as a framework, we can more accurately determine the effects of counseling on the sustainability of low-income homeownership.
Real Estate Economics, Vol. 23.3, 1995, 271-310
A clustering algorithm is applied to effective rents for twenty-one U.S. office markets, and to twenty-two metropolitan markets using vacancy data. It provides support for the conjecture that there exists a few major families of cities: including an oil and gas group and an industrial Northeast group. Unlike other clustering studies, we find strong evidence of bicoastal city associations among cities such as Boston and Los Angeles. We present a bootstrapping methodology for investigating the robustness of the clustering algorithm, and develop a means for testing the significance of city associations. While the analysis is limited to aggregate rent and vacancy data, the results provide a guideline for the further application of cluster analysis to other types of real estate and economic information.
University of Pennsylvania Law Review, Vol.143.5, May 1995, 1285-1342
Housing Policy Debate, Vol 6.1, 1995 141-167
This article addresses the extent to which housing market constraints contribute to spatial stratification of the U.S. population by income and race. Differential patterns of residence based on income and race may result from local and federal regulatory policies or from housing market discrimination by private and public actors. Income homogeneity within communities results directly from local control over taxes, public services, and land use. The empirical literature shows that local regulations have effects on housing prices that tend to exclude low‐ and moderate‐income households. These regulations are also likely to promote racial segregation because of the correlation between income and race, although the magnitude of this effect is unclear. Discrimination by government and private actors directly generates spatial segmentation based on race and ethnicity. While federal policy could alleviate these patterns, current and past federal policy initiatives have themselves increased stratification based on income and race.
Journal of Real Estate Finance and Economics, Vol. 9.3, December 1994, 223-239
Disparities in mortgage lending patterns between minority and nonminority neighborhoods have refocused attention on the Community Reinvestment Act (CRA), a statute designed to encourage lending by financial institutions to nearby lower income neighborhoods. Geographic disparities may derive from discrimination, neighborhood and borrower attributes, as well as regulation itself. This article examines possible spatial impacts of the CRA. Tests for differential lender screening across regulated and nonregulated institutions in five metropolitan areas provide no consistent findings of regulatory effects. The article also tests whether lower income and minority applicants are more likely to be accepted when they apply for loans in lower income and minority neighborhoods. Using data for Boston, evidence is found for concentration effects that may result from institutional factors, information economies, or regulation.
Journal of Housing Economics, Vol 3.Issue 3, 1994, 186-206
In this paper, we use clustering techniques to identify structural relationships among U.S. housing markets and develop a bootstrapping procedure to test whether associations between cities are significant. The method allows the creation of meaningful “groups” of cities. These groups are useful for purposes of diversification, and for identifying appropriate hedging proxies for city-specific futures instruments. A clustering algorithm, K-means, is applied to the 1977-1992 returns to housing price indices in 30 metropolitan U.S. housing markets. It demonstrates strong regional differences in housing price fluctuations. When three groups are specified, we find a West Coast group, an East Coast group, and a central U.S. group. When more groups are specified, the West Coast divides into two clusters that are not north and south, and Texas cities separate from the central U.S. group. Using bootstrap methods, we reject the hypothesis that these groupings are a result of random associations.
Journal of Housing Research Vol 4.2, 1993, 245-276
Recent data released pursuant to the 1989 amendments to the Home Mortgage Disclosure Act (HMDA) which show large disparities in mortgage lending between minority and non-minority neighborhoods, have refocused the attention of policy makers, lenders, community advocates and academics on possible racial discrimination in the home loan market. In this paper, we review the existing literature on redlining. Many of the methodological shortcomings of the previous studies can be remedied by using post-1989 HMDA data to examine whether lender acceptance or rejection of mortgage applications is related to racial and ethnic neighborhood composition. We test two models of the lender’s decision to accept or reject loan applicants, one including and one without variables that proxy for neighborhood risk using data for Boston and Philadelphia. With proxies for neighborhood risk included, the results do not support the hypothesis that financial institutions redline neighborhoods in these two cities.
Real Estate Economics, Vol 20, Issue 2, June 1992, 302-324
Recent contributions to the literature have resulted in a standard modelling of office markets. The models provide considerable insight into the working of office markets. • Nonetheless, a major difficulty is the use of data for a single city or aggregate data for the U.S. The latter implicitly assumes that model structure is invariant across cities. In this article we test for structural differences in office markets by size class. Rental data from REIS Reports for twenty-one metropolitan areas for the time period 1981 to 1990 are used to model office market behavior. Results suggest market outcomes vary by city size, larger markets are better modelled using standard procedures, and Manhattan behaves quite differently from the other markets.
Housing Policy Debate. Vol 3.2, 1992, 333-370
There are persistent differences in homeownership rates across racial and ethnic groups. Homeownership rates for whites are over 20 percentage points higher than for blacks or Hispanics. This paper uses a model of the housing tenure decision to gain a better understanding of these racial and ethnic differentials in homeownership and employs a decomposition technique that has been applied to labor market discrimination to report the results of the empirical testing of two hypotheses: (1) race (ethnicity) influences the probability of ownership through differences in household endowments (income, education, age, gender, and family type) and market endowments (price and location); and (2) race (ethnicity) directly influences the probability of ownership through racial or ethnic discrimination and other factors that may be correlated with race or ethnicity. We find endowment effects important in explaining the persistent racial and ethnic disparities in homeownership. In brief, logit analysis of 1989 American Housing Survey (AHS) national sample data reveals that 81 percent (78 percent) of the differences between the predicted probability of ownership between black and white households (Hispanic/non‐Hispanic) are due to differences in group endowments. Direct effects explain 19 percent of the black‐white differentials and 22 percent of the Hispanic/non‐Hispanic differentials. Because the direct effects are modeled as residual differences, it must be realized that the residual components could also be capturing the influence of important omitted or harder to measure variables internal to the market process and correlated with race or ethnicity. These include wealth, household location, employment history, credit history, and cultural predisposition toward homeownership.
On Choosing Among House Price Index Methodologies (with Bradford Case, Henry O. Pollakowski) Abstract
This paper compares housing price indices estimated using three models with several sets of property transaction data. The commonly used hedonic price model suffers from potential specification bias and inefficiency, while the weighted repeat-sales model presents potentially more serious bias and inefficiency problems. A hybrid model combining hedonic and repeat-sales equations avoids most of these sources of bias and inefficiency. This paper evaluates the performance of each type of model using a particularly rich local housing market database. The results, though ambiguous, appear to confirm the problems with the repeat sales model but suggest that systematic differences between repeat-transacting and single-transacting properties lead to bias in the hedonic and hybrid models as well.
Journal of Urban and Contemporary Law, Vol. 40, Summer/Fall 1991, 49-64
Journal of Housing Research, Vol 1.1, December 1990, 163-185
Land Economics. Vol 66.3, August 1990, 315-324
This paper estimates the direct and spillover effects of zoning controls along with other growth restrictions on housing prices. Theory leads us to expect a positive effect of land-use restrictions on the price of developed land and a negative effect on the price of undeveloped land. We consider the effects on housing prices, and hence the effects on developed land. Other studies have examined the impact of separate components of land-use controls within a locality. We show that specific growth controls must be examined in the overall context of local land-use policy, and that interjurisdictional as well as intrajurisdictionael effects must be considered.
American Real Estate and Urban Economics Association Journal, Winter 1989, Vol 17.4, 389-402
This paper utilizes micro data 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.
Housing Finance Review, Summer 1988, 169-200
Research in Law and Economics, Vol. 10, April 1987, 189-210
Monograph Series in Finance and Economics eds. Edwin Elton and Martin J Gruber (New York University Graduate School of Business, 1980), 1-50
Population and Development Review, 1978, Vol. 4, No. 1, 1-22
Business Economics, Sept 1975, Vol. X, No. 4, 84-88
Series publications include:
Series publications include: