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Real Estate Finance

Paper Session

Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM

Loews Philadelphia, Washington C
Hosted By: American Real Estate and Urban Economics Association & American Finance Association
  • Chair: Rodney Ramcharan, University of Southern California

Pockets of Poverty: The Long-term Effects of Redlining

Ian Appel
Boston College
Jordan Nickerson
Boston College


This paper studies the long-term effects of redlining policies that restricted access to credit in urban communities. For empirical identification, we use a regression discontinuity design that exploits boundaries from maps created by the Home Owners Loan Corporation (HOLC) in the 1930's. We find that "redlined" neighborhoods have 4.9% lower home prices in 1990 relative to adjacent areas, after accounting for boundaries that coincide with the physical features of cities (e.g., rivers, landmarks). Moreover, we show that housing characteristics do not exhibit discontinuities at the boundaries prior to the commissioning of the maps. Evidence suggests lower property values may be driven by negative externalities associated with fewer owner-occupied homes and more vacant structures. Overall, our results indicate the effects of discriminatory credit rationing can persist decades after such practices are formally discontinued.

Identifying the Benefits from Home Ownership: A Swedish Experiment

Stijn Van Nieuwerburgh
New York University
Paolo Sodini
Stockholm School of Economics
Roine Vestman
Stockholm University


This paper studies the economic benefits of home ownership. Exploiting a quasi-experiment surrounding privatization decisions of municipally-owned apartment buildings, we obtain random variation in home ownership for otherwise similar buildings with similar tenants. We link the tenants to their tax records to obtain information on demographics, income, mobility patterns, housing wealth, financial wealth, and debt. These data allow us to construct high-quality measures of consumption expenditures. Home ownership causes households to move up the housing ladder, work harder, and save more. Consumption increases out of housing wealth are concentrated among the home owners who sell subsequent to privatization and among those who receive negative income shocks, evidencing a collateral effect.

An Equilibrium Model of Housing and Mortgage Markets with State-Contingent Lending Contracts

Tomasz Piskorski
Columbia University
Alexei Tchistyi
University of Illinois


We develop a tractable general equilibrium framework of housing and mortgage markets with aggregate
and idiosyncratic risks, costly liquidity and strategic defaults, empirically relevant informational asymmetries, and endogenous mortgage design. We show that adverse selection plays an important role in shaping the form of an equilibrium contract. If borrowers' homeownership values are known, the equilibrium state-contingent contract depends on both aggregate wages and house prices. However, when lenders cannot observe borrowers' homeownership values, the equilibrium contract only depends on house prices and takes the form of a home equity insurance mortgage (HEIM) that eliminates the strategic default option and insures the borrower's equity position. Interestingly, we show that widespread adoption of such loans has ambiguous effects on the homeownership rate and household welfare. In economies in which recessions are expected to be severe, the HEIM equilibrium Pareto dominates the equilibrium with fixed-rate mortgages. However, if economic downturns are not severe, HEIMs can lower the homeownership rate and make some marginal home buyers worse-off. We also note that adjustable-rate mortgages may share some benefits with HEIMs. Finally, we find that unrestricted competition in contract design among lenders may lead to a non-existence of equilibrium. This suggests that government-sponsored enterprises may stabilize mortgage markets by subsidizing certain lending contracts.

Lending Competition and Non-Traditional Mortgages

Arthur Acolin
University of Southern California
Susan Wachter
University of Pennsylvania
Xudong An
Federal Reserve Bank of Philadelphia


We provide new perspectives on the rampant growth of non-traditional mortgages (NTMs) prior
to the Great Recession by showing that local lending competition contributed significantly to the
early growth of NTMs while growth of non-bank lending played an important role in expanding
NTMs at a later stage. We also find that state level anti-predatory lending laws were more (less)
effective in restraining the origination of NTMs in markets with higher (lower) levels of lending
Elliot Anenberg
Federal Reserve Board
Alberto Rossi
University of Maryland
Adriano Rampini
Duke University
John Mondragon
Northwestern University
JEL Classifications
  • G2 - Financial Institutions and Services
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location