At the onset of the recent global financial crisis, the workhorse macroeconomic models assumed frictionless financial markets. These frameworks were thus not able to anticipate the crisis, nor to analyze how the disruption of credit markets changed what initially appeared like a mild downturn into the Great Recession. Since that time, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new empirical work. We argue that a complete description of the Great Recession must take account of the financial distress facing both households and banks and, as the crisis unfolded, nonfinancial firms as well. Exploiting both panel data and time series methods, we analyze the contribution of the house price decline, versus the banking distress indicator, to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.
{"title":"What Happened: Financial Factors in the Great Recession","authors":"M. Gertler, Simon Gilchrist","doi":"10.1257/JEP.32.3.3","DOIUrl":"https://doi.org/10.1257/JEP.32.3.3","url":null,"abstract":"At the onset of the recent global financial crisis, the workhorse macroeconomic models assumed frictionless financial markets. These frameworks were thus not able to anticipate the crisis, nor to analyze how the disruption of credit markets changed what initially appeared like a mild downturn into the Great Recession. Since that time, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real sector. The goal of this paper is to describe what we have learned from this new research and how it can be used to understand what happened during the Great Recession. In the process, we also present some new empirical work. We argue that a complete description of the Great Recession must take account of the financial distress facing both households and banks and, as the crisis unfolded, nonfinancial firms as well. Exploiting both panel data and time series methods, we analyze the contribution of the house price decline, versus the banking distress indicator, to the overall decline in employment during the Great Recession. We confirm a common finding in the literature that the household balance sheet channel is important for regional variation in employment. However, we also find that the disruption in banking was central to the overall employment contraction.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79782535","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract The topic of air pollution has drawn considerable attention globally. In this paper, we examine the immediate effect of air pollution on a substantial decision, that is, a housing purchase. By linking housing purchasing behavior with the air quality in Beijing, we document market participants' behaviors unexplained by rational economic theories. Our main result suggests that the transaction prices on a severely polluted day are 0.65% higher than those of the days without pollution, other things being equal. This translates into approximately 3.51 million yuan daily increase based on the average transaction volume and price on a typical day in Beijing. The heterogeneity analysis further suggests that this effect is mostly driven by non-local and low income buyers. After ruling out rational explanations, we demonstrate that our empirical results are consistent with salience theory under weak assumptions.
{"title":"Negotiating Housing Deal on a Polluted Day: Consequences and Possible Explanations","authors":"Yu Qin, Jing Wu, Jubo Yan","doi":"10.2139/ssrn.3147359","DOIUrl":"https://doi.org/10.2139/ssrn.3147359","url":null,"abstract":"Abstract The topic of air pollution has drawn considerable attention globally. In this paper, we examine the immediate effect of air pollution on a substantial decision, that is, a housing purchase. By linking housing purchasing behavior with the air quality in Beijing, we document market participants' behaviors unexplained by rational economic theories. Our main result suggests that the transaction prices on a severely polluted day are 0.65% higher than those of the days without pollution, other things being equal. This translates into approximately 3.51 million yuan daily increase based on the average transaction volume and price on a typical day in Beijing. The heterogeneity analysis further suggests that this effect is mostly driven by non-local and low income buyers. After ruling out rational explanations, we demonstrate that our empirical results are consistent with salience theory under weak assumptions.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84913263","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the impact of the sale of rental housing in Amsterdam on the local housing market. This increases the supply of owner-occupied housing, but can also contribute to gentrification associated with the inflow of different household groups. Earlier literature focused on the former effect and reported a negative price effect. We take a fresh look at the issue by considering the sale of private as well as social rental housing, allow for differing time trends within the municipality, controlling for area fixed effects, distinguishing between short and long-term impacts and addressing endogeneity of the sale of rental housing. The main finding is a robust gentrifying effect of the sale of private rental housing in the core area of Amsterdam.
{"title":"Gentrification Through the Sale of Rental Housing? Evidence from Amsterdam","authors":"J. Rouwendal, A. Keus, Jasper Dekkers","doi":"10.2139/ssrn.3135874","DOIUrl":"https://doi.org/10.2139/ssrn.3135874","url":null,"abstract":"This paper analyzes the impact of the sale of rental housing in Amsterdam on the local housing market. This increases the supply of owner-occupied housing, but can also contribute to gentrification associated with the inflow of different household groups. Earlier literature focused on the former effect and reported a negative price effect. We take a fresh look at the issue by considering the sale of private as well as social rental housing, allow for differing time trends within the municipality, controlling for area fixed effects, distinguishing between short and long-term impacts and addressing endogeneity of the sale of rental housing. The main finding is a robust gentrifying effect of the sale of private rental housing in the core area of Amsterdam.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"116 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85104929","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
What is the role of the financial sector in explaining business cycles? This question is as old as the field of macroeconomics, and an extensive body of research conducted since the Global Financial Crisis of 2008 has offered new answers. The specific idea put forward in this article is that expansions in credit supply, operating primarily through household demand, have been an important driver of business cycles. We call this the credit-driven household demand channel. While this channel helps explain the recent global recession, it also describes economic cycles in many countries over the past 40 years.
{"title":"Finance and Business Cycles: The Credit-Driven Household Demand Channel","authors":"Atif R. Mian, Amir Sufi","doi":"10.2139/ssrn.3124001","DOIUrl":"https://doi.org/10.2139/ssrn.3124001","url":null,"abstract":"What is the role of the financial sector in explaining business cycles? This question is as old as the field of macroeconomics, and an extensive body of research conducted since the Global Financial Crisis of 2008 has offered new answers. The specific idea put forward in this article is that expansions in credit supply, operating primarily through household demand, have been an important driver of business cycles. We call this the credit-driven household demand channel. While this channel helps explain the recent global recession, it also describes economic cycles in many countries over the past 40 years.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90743689","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
To varying degrees, most municipalities regulate urban development with zoning, density restrictions, and parking requirements. Such policies restrict the housing supply and urban density relative to what it could be in a free market. In this paper, we review the literature that measures the price effects of a variety of land-use regulations. Most of these studies find that both traditional land-use policies and newer policies, such as smart growth and inclusionary zoning, increase the cost of housing. And because housing takes up a larger share of the budgets of lower-income households relative to higher-income households, these policies are regressive—a disproportionate share of their costs falls on the relatively poor.
{"title":"How Land-Use Regulation Undermines Affordable Housing","authors":"Sanford Ikeda","doi":"10.2139/ssrn.3211656","DOIUrl":"https://doi.org/10.2139/ssrn.3211656","url":null,"abstract":"To varying degrees, most municipalities regulate urban development with zoning, density restrictions, and parking requirements. Such policies restrict the housing supply and urban density relative to what it could be in a free market. In this paper, we review the literature that measures the price effects of a variety of land-use regulations. Most of these studies find that both traditional land-use policies and newer policies, such as smart growth and inclusionary zoning, increase the cost of housing. And because housing takes up a larger share of the budgets of lower-income households relative to higher-income households, these policies are regressive—a disproportionate share of their costs falls on the relatively poor.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"136 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77458457","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In Part 1 ("Divergent Markets") of this three-part series, we document that the recent divergence in inventories of new and existing homes seems to reflect a scarcity of lower- and middle-tier homes. We now examine one potential factor contributing to this shortage: rental demand.
{"title":"The Housing Supply Puzzle: Part 2, Rental Demand","authors":"Evan Karson, Joseph T. McGillicuddy, B. Ravikumar","doi":"10.20955/ES.2018.10B","DOIUrl":"https://doi.org/10.20955/ES.2018.10B","url":null,"abstract":"In Part 1 (\"Divergent Markets\") of this three-part series, we document that the recent divergence in inventories of new and existing homes seems to reflect a scarcity of lower- and middle-tier homes. We now examine one potential factor contributing to this shortage: rental demand.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"83 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74798309","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a monthly panel dataset of individuals' debt composition including mortgage and non-mortgage consumer credit, we show that house price changes can explain a significant fraction of personal debt composition dynamics. We exploit the variation in local house price growth as shocks to homeowners' housing wealth to study the consequential adjustment of personal debt composition. To account for local demand shocks and disentangle the housing collateral channel from the wealth effect, we use renters and non-equity-withdrawal homeowners in the same region as control groups. We present direct evidence that homeowners reoptimize their debt structure by using withdrawn home equity to pay down comparatively expensive short-term non-mortgage debt during a housing boom, unsecured consumer loans in particular. We also find that homeowners withdraw home equity to finance their entrepreneurial activities. Our study sheds new light on the dynamics of personal debt composition in response to changes in house prices.
{"title":"House Prices, Home Equity, and Personal Debt Composition","authors":"Jie Li, Xin Zhang","doi":"10.2139/ssrn.3080189","DOIUrl":"https://doi.org/10.2139/ssrn.3080189","url":null,"abstract":"Using a monthly panel dataset of individuals' debt composition including mortgage and non-mortgage consumer credit, we show that house price changes can explain a significant fraction of personal debt composition dynamics. We exploit the variation in local house price growth as shocks to homeowners' housing wealth to study the consequential adjustment of personal debt composition. To account for local demand shocks and disentangle the housing collateral channel from the wealth effect, we use renters and non-equity-withdrawal homeowners in the same region as control groups. We present direct evidence that homeowners reoptimize their debt structure by using withdrawn home equity to pay down comparatively expensive short-term non-mortgage debt during a housing boom, unsecured consumer loans in particular. We also find that homeowners withdraw home equity to finance their entrepreneurial activities. Our study sheds new light on the dynamics of personal debt composition in response to changes in house prices.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83482427","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Jaclene Begley, Hamilton B. Fout, Michael LaCour-Little, Nuno Mota
Reverse mortgages are accrual notes of indeterminate maturity secured by home equity. In this paper, we analyze Fannie Mae's experience with the Home Equity Conversion Mortgage, the FHA-insured, non-recourse version of this product. Using loan and borrower characteristics, we model a number of relationships, including loss severity. We also show how the addition of credit information affects our models. Finally, we use credit data to conduct a policy experiment which illustrates how better screening might have affected portfolio performance. We find that imposing a minimum borrower credit score of 620 would have reduced originated volume by 23% and economic losses by 32%.
{"title":"Home Equity Conversion Mortgages: The Secondary Market Investor Experience","authors":"Jaclene Begley, Hamilton B. Fout, Michael LaCour-Little, Nuno Mota","doi":"10.2139/ssrn.3055881","DOIUrl":"https://doi.org/10.2139/ssrn.3055881","url":null,"abstract":"Reverse mortgages are accrual notes of indeterminate maturity secured by home equity. In this paper, we analyze Fannie Mae's experience with the Home Equity Conversion Mortgage, the FHA-insured, non-recourse version of this product. Using loan and borrower characteristics, we model a number of relationships, including loss severity. We also show how the addition of credit information affects our models. Finally, we use credit data to conduct a policy experiment which illustrates how better screening might have affected portfolio performance. We find that imposing a minimum borrower credit score of 620 would have reduced originated volume by 23% and economic losses by 32%.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77737795","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Yuval Arbel, Danny Ben-Shahar, Sharon Horsky, Naor Varsano
This research is the first to explore the time-to-sell (TTS) and willingness to pay (WTP) in the context of green real estate. We employ unique data on transactions and household characteristics of owner-occupiers in newly developed green and conventionally built condominiums. We find that, after addressing the potential endogeneity between unit TTS and price, the average TTS of units in green, as compared to conventional, structures is significantly shorter. Considering developers’ financing cost, this shorter TTS is equivalent to an indirect price premium of 1.8%–5.3%. We further find that whenever the indirect green premium associated with TTS decreases, the green quality-adjusted price premium increases. Finally, we find an insignificant difference between the green and conventional structures in the correlation between household characteristics and the WTP. Our findings may serve both developers and policymakers in promoting green real estate construction.
{"title":"Green versus Conventional Housing: Time-to-Sell and Willingness to Pay","authors":"Yuval Arbel, Danny Ben-Shahar, Sharon Horsky, Naor Varsano","doi":"10.2139/ssrn.2989500","DOIUrl":"https://doi.org/10.2139/ssrn.2989500","url":null,"abstract":"This research is the first to explore the time-to-sell (TTS) and willingness to pay (WTP) in the context of green real estate. We employ unique data on transactions and household characteristics of owner-occupiers in newly developed green and conventionally built condominiums. We find that, after addressing the potential endogeneity between unit TTS and price, the average TTS of units in green, as compared to conventional, structures is significantly shorter. Considering developers’ financing cost, this shorter TTS is equivalent to an indirect price premium of 1.8%–5.3%. We further find that whenever the indirect green premium associated with TTS decreases, the green quality-adjusted price premium increases. Finally, we find an insignificant difference between the green and conventional structures in the correlation between household characteristics and the WTP. Our findings may serve both developers and policymakers in promoting green real estate construction.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73918157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the past two years, the cost of housing and community amenities has been growing at a moderate rate. Due to financial problems, one in every ten households delayed paying its bills, or paid them only in part. The volume of housing and community amenities payments in arrears remained the same as in the previous years. The monthly rent cost of a one-room apartment, which in 2010–2015 had been equivalent to half of an average wage, in Q1 2017 fell to 40% of an average wage.
{"title":"Housing Expenditures, Purchase and Rental of Residential Properties in Russia’s Regions","authors":"A. Burdyak","doi":"10.2139/ssrn.2973791","DOIUrl":"https://doi.org/10.2139/ssrn.2973791","url":null,"abstract":"Over the past two years, the cost of housing and community amenities has been growing at a moderate rate. Due to financial problems, one in every ten households delayed paying its bills, or paid them only in part. The volume of housing and community amenities payments in arrears remained the same as in the previous years. The monthly rent cost of a one-room apartment, which in 2010–2015 had been equivalent to half of an average wage, in Q1 2017 fell to 40% of an average wage.","PeriodicalId":12014,"journal":{"name":"ERN: Microeconometric Studies of Housing Markets (Topic)","volume":"35 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-05-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75386058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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