House Price Determination
Friday, Jan. 6, 2017 7:30 PM – 9:30 PM
- Chair: Paul Ernesto Carrillo, George Washington University
Demand for New Cities: Property Value Capitalization of Municipal Incorporation
AbstractUsing detailed data from the metropolitan Atlanta area, we compare estimates of the capitalization of new city formation using three empirical strategies. The typical hedonic approach indicates large increases in property values, while combining the difference-in-differences approach with the border method suggests little change. We provide evidence that border area counterfactuals are contaminated by treatment, with spillovers threatening identification and producing inconsistent results. Our preferred empirical strategy combines difference-in-differences hedonics with data pre-preprocessing methods. Our sample of parcels with similar “at-risk” for incorporation factors as new city parcels is well-balanced, displays parallel outcome pre-trends, and passes our placebo tests. These results indicate that new city formation is positively capitalized into property values within the new city, increasing 4-5 percent in the two years following new city formation compared to the two years prior and 12-13 percent over the entire analysis period. The results also indicate that capitalization is stronger for parcels with greater potential for redistribution and income heterogeneity. Our findings may be broadly interpreted as supporting the benefits view of property taxation, with benefits deriving from decentralized provision, more local control, curtailed redistribution, and limiting interactions with different groups in public good space.
Optimal Contract Design in Residential Brokerage
AbstractUsing a theoretical agency model with hidden-information, we study the optimal contract design in residential brokerage. We assume that the agent's private information is endogenously learned and the principal observes neither the agent's information nor how accurate the information is. We show that the optimal commission varies with the market conditions; commissions should be higher under extreme market conditions. When there is a choice of agents, the principal prefers the agent who is more informed, more efficient in learning, and more easily motivated to learn.
Asymmetrical limits of arbitrage: micro evidences from the Singapore private housing market and policy implications
AbstractThis article studies the impacts of anti-speculation policies as limits of arbitrage (LOA) on investors in the Singapore private housing market. It finds that these policies act as additional market frictions may limit arbitrage asymmetrically (less at buying side and more at selling side), and as a result act as a trap that lets the investors buy while hampers their selling. The asymmetrical LOA explains the distorted price-volume relationship as well as the decreasing cap-rate in the Singapore private housing market.
Besides, by comparing the policy impacts in countries (or regions) which adopt different anti-speculation strategies, it demonstrates that collecting sellers' stamp duty on short-term property holders creates stronger asymmetry in LOA.
It makes the following contributions. Firstly, it adds to the understanding of LOA by providing micro evidences for LOA and by revealing that additional market frictions limit arbitrage asymmetrically (less at buying side and more at selling side) which is ignored by the existing studies. Secondly, the asymmetrical LOA has important implications for governments' market interventions.
- D8 - Information, Knowledge, and Uncertainty
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location