International Real Estate and Institutions
Paper Session
Monday, Jan. 4, 2021 12:15 PM - 2:15 PM (EST)
- Chair: Cristian Badarinza, National University of Singapore
Are Foreign Buyers Making Housing Unaffordable? Results from a Natural Experiment in Vancouver
Abstract
Are foreign investors contributing to a housing affordability crisis in major global cities? If so, can targeted policy interventions successfully alleviate this problem? A lack of data on foreign investment flows into real estate has made these questions hard to answer. This paper exploits three exogenous shocks to foreign investor demand in the city of Vancouver, B.C., and uses a ``home-bias abroad'' strategy to identify the causal effect of foreign buyer demand. To the first question: we find that out-of-town buyers significantly raise local house price growth. To the second: the imposition of a Foreign Buyers Tax had an immediate but limited impact on affordability. This is because some foreign buyers substituted into renting: rental vacancy rates fell by more than one-half following the tax's implementation. Moreover, we observe a dynamic supply response--new owner-occupied housing construction fell in foreign-buyer ``destination'' neighborhoods--so the long-run impact of the tax on affordability is likely to be attenuated.Commonalities in Private Commercial Real Estate Market
Abstract
We examine co-movements in private commercial real estate returns and market liquidity in the US (apartment, office, retail) and for eighteen global cities using data from Real Capital Analytics over the period 2005{2018. Our measure of market liquidity is based on the difference between supply and demand price indexes (Fisher et al., 2003, 2007). We document for all analyzed markets much stronger commonalities in changes in market liquidity compared to commonalities in real price index returns, where we base the commonality measure on Roll (1988) and Karolyi et al. (2012). We further provide empirical evidence that space markets are less integrated than capital markets by analyzing co-movements in net-operating-income and cap rate spreads (over similar maturity bond yields). In a theoretical simulation model, we show that the strong integration of capital markets compared to space markets, is in fact the reason why market liquidity co-moves so strongly compared to returns. Our results are of interest for large private real estate investors such as pension funds and other institutional investors who are interested in spreading risk. Our findings imply that full diversfied price return bene ts may be difficult to obtain because market liquidity may dry up in all markets simultaneously, which makes portfolio rebalancing more difficult and costly.“Safe Haven” in Property Markets: Evidence from the Panama Papers
Abstract
Real estate market is highly vulnerable to inflow of illicit wealth, given the clandestine nature of dark money that makes these activities difficult to detect and estimate. In this paper, we exploit one of the largest offshore data leaks – “The Panama Papers” – to study how individuals linked to offshore secrecy behave in housing transactions, and quantify the effects of their participations in the housing market. We find that buyers linked to offshore secrecy purchase properties at a premium of 3.8%. Further robustness and heterogeneity tests provide that the price premium is driven by the individuals’ secret funding and hidden agenda to park money in property safe haven. The price premium diminishes after the implementation of Anti-Money Laundering monitoring and regulatory regime in the real estate market. We find evidence of short-term spillovers of Panama premium onto properties within the same project, and the same neighbourhood: Prices of properties in the same project and neighbourhood rise by 2.4% and 3.4% respectively after the Panama-linked transaction occurred.Discussant(s)
Elliot Anenberg
,
Federal Reserve Board
Leslie Sheng Shen
,
Federal Reserve Board
Yigitcan Karabulut
,
Frankfurt School of Finance and Management
Ville Rantala
,
University of Miami
JEL Classifications
- F3 - International Finance