Housing Consumption and Homeownership

Paper Session

Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM

Sheraton Grand Chicago, Huron
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Michael Eriksen, University of Cincinnati

Collateral Constraints, Wealth Effects, and Volatility: Evidence From Real Estate Markets

William Mann
,
University of California-Los Angeles
Barney Hartman-Glaser
,
University of California-Los Angeles

Abstract

We document that, within-region, lower-income zip codes have more volatile returns to housing than do higher-income zip codes, without any corresponding higher returns. We rationalize this finding with a simple model that features a collateral constraint on borrowing and non-homothetic preferences over housing. Shocks to the representative household’s income lead to volatility in the return to housing via the collateral constraint, and this volatility is decreasing in the average level of income, consistent with our empirical findings. We provide further evidence for our mechanism using (1) variation in wealth induced by lagged housing returns; (2) cross-sectional data on the housing expenditure share; and (3) state-level non-recourse status, which instruments for the tightness of collateral constraints. Finally, we observe that endogenous volatility in housing returns may limit the available supply of housing, via producers’ option to delay. Consistent with this hypothesis, the volatility of new permit issuance and the age of the housing stock are both monotonically decreasing in local income levels.

Borrowing Constraints and Homeownership Over the Recent Cycle

Arthur Acolin
,
University of Southern California
Jesse Bricker
,
Federal Reserve Board
Paul Calem
,
Federal Reserve Bank of Philadelphia
Susan Wachter
,
University of Pennsylvania

Abstract

This paper identifies for the first time the impact of borrowing constraints in the recent decline in homeownership rates. Using data from the Survey of Consumer Finance (SCF), we measure the combined impact of income, wealth and credit constraints on homeownership outcomes over time. It has been established that credit supply loosened during the 2004-07 period and then became considerably more restricted in the wake of the Great Recession. Homeownership has also declined. However, the impact of this tightening of credit on probability of individual households to become homeowners has not previously been estimated. Using estimations of borrowing constraints going back to 2001, we identify the impact of earlier period borrowing constraints compared to those of 2010-13 on population level U.S. homeownership rates.

Systemic Banks, Mortgage Supply and Housing Rents

Pedro Gete
,
Georgetown University
Michael Reher
,
Harvard University

Abstract

We show that tighter mortgage lending standards after the Great Recession have led to higher housing rents. U.S. banks, especially those deemed systemically important, have increased their propensity to deny mortgage applications, particularly among FHA loan applicants and black and Hispanic borrowers. Tighter standards have increased demand for rental housing and led to higher rents, depressed homeownership rates, greater construction of multifamily housing, and lower rental vacancies. These effects are stronger in MSAs with barriers to using online lending platforms, such as age and internet accessibility, and where regulations inhibit competition among alternative lenders.

Portfolio Demand and Housing Consumption Risk Hedging: Evidence From Geographic Variations in Housing Supply

Xiongchuan Lai
,
Zhongnan University of Economics and Law
Yuming Fu
,
National University of Singapore

Abstract

Using recent waves of PSID in the U.S., we show that households in metropolitan areas with less elastic housing supply invest a relatively larger fraction of their financial wealth in risky assets (stocks). We explain this stylized fact using a household portfolio choice model with both housing and nonhousing consumption, where the optimal holding of the risky assets is additionally motivated by households’ hedging incentives against unfavorable housing price risk. We show that such motive is dependent on location and household lifecycle: it is stronger in places with less elastic housing supply and for young households on the rising path of lifecycle housing consumption profile. Our findings indicate that, besides adjusting homeownership choices, households also rely on financial asset as a means of hedging against housing consumption risk.
Discussant(s)
Itzhak Ben-David
,
Ohio State University
Roni Golan
,
University of California-Los Angeles
Tim Landvoigt
,
University of Texas-Austin
Jeffrey Kubik
,
Syracuse University
JEL Classifications
  • G2 - Financial Institutions and Services
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location