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Policy Issues

Paper Session

Sunday, Jan. 6, 2019 1:00 PM - 3:00 PM

Hilton Atlanta, 217
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Stijn Van Nieuwerburgh, Columbia University

Property Taxation and Businesses: A Regression Discontinuity Approach

Shawn M. Rohlin
,
Kent State University
Ali Enami
,
Tulane University
Curtis Reynolds
,
Kent State University

Abstract

The endogenous nature of property taxation makes it difficult to properly understand the effects of property taxation on businesses. We employ a regression discontinuity design comparing business outcomes in areas that barely passed school property tax increases to business outcomes in areas that barely failed to pass the tax increase. The findings suggest that property tax increases have an immediate adverse effect on new business formation while more established business are adversely affected three years after passing the tax increase.

Stringency of Land-Use Regulation: Building Heights in U.S. Cities

Jan Brueckner
,
University of California-Irvine
Ruchi Singh
,
University of Georgia

Abstract

This paper explores the stringency of land-use regulation in US cities, focusing on building heights. Substantial stringency is present when regulated heights are far below free-market heights, while stringency is lower when the two values are closer. Using FAR (the floor-area ratio) as a height index, theory shows that the elasticity of the land price with respect to FAR is a proper stringency measure. This elasticity is estimated for five US cities by combining CoStar land-sales data with FAR values from local zoning maps, and the results show that New York and Washington, D.C., have stringent height regulations, while Chicago's and San Francisco's regulations are less stringent (Boston represents an intermediate case).

Housing Rents and Inflation Rates

Edward Coulson
,
University of California-Irvine
Brent Ambrose
,
Pennsylvania State University
Jiro Yoshida
,
Pennsylvania State University

Abstract

This paper demonstrates that inflation rates are significantly modified when they are based on the alternative quality-adjusted measure of housing rents constructed from a monthly statistic of landlord net rental income. The official rate was overestimated by 1.7 to 4.2% annually during the Great Recession but underestimated by 0.3 to 0.9% annually during the current expansionary period. We further demonstrate significant impacts of the modified inflation rates on Social Security and real gross domestic product. These impacts persist for a long-term because the modified indexes are integrated of order one whereas the official indexes are trend stationary.

Can Lending Restrictions on "Exotic" Lending Dampen Housing Price Volatility? A Panel VAR Exploration

Wayne Archer
,
University of Florida

Abstract

"Housing price volatility is important because most household non-financial wealth is in housing and because low house value is a central precondition to mortgage default. However, despite the collapse of house prices in the Great Recession and the massive default experience that followed, it remains unclear how significantly lending regulation could have mitigated the bubble. Post-bubble research has been unclear whether “loose lending” caused the bubble or the bubble caused “loose lending,” and most related studies have assumed one direction of causality or the other. Thus, questions of causality and about the capacity of regulation to mitigate house price volatility remain open. This study, recognizing that prices and lending are interdependent and dynamic, uses vector auto-regression (VAR) to explore several factors as contributors to price volatility. It examines the roles of interest rates, inflation, and the wide-spread use of several “exotic” loans and practices. It also recognizes the possible effect of geographic and urban characteristics in house price volatility. The study uses the techniques of VAR to test for Granger causality, to analyze the factors contributing to forecast error variance of housing appreciation, and, through impulse-response analysis, to explore the potential effect of lending restrictions.

The investigation applies panel VAR to quarterly data, 1997-2006, from 123 CBSAs throughout the United States. It thereby encompasses approximately two-thirds of the U.S. population and housing. It reveals strong statistical (Granger) causality favoring the influence of “exotic” lending upon housing appreciation. On the other hand, it finds the magnitude of this influence to be limited. In all of the analysis, the own-influence of appreciation is an important component, suggesting a “momentum” factor, while interest rates, in general, have a surprisingly weak role.
Discussant(s)
Adrien Matray
,
Princeton University
Chamna Yoon
,
KAIST
Dorinth Van Dijk
,
University of Amsterdam
Daniel Greenwald
,
Massachusetts Institute of Technology
JEL Classifications
  • R1 - General Regional Economics
  • R5 - Regional Government Analysis