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Housing Cost and Supply

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Nautical
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Tsur Somerville, University of British Columbia

(Why) Are Housing Costs Rising?

Christos Andreas Makridis
,
Massachusetts Institute of Technology

Abstract

Housing costs, relative to household incomes, have grown by 22 percent between 1980 and 2017. While the standard view among economists is that these costs reflect spatial differences in housing and zoning regulation, others have more recently argued that they reflect increasing labor costs. This paper shows that labor costs cannot explain the rise in housing costs. In fact, housing costs relative to income have grown more in larger counties where labor costs have decreased. Moreover, the areas with the greatest increases in housing costs relative to income are also the areas with the most restrictive housing regulation.

Highly Disaggregated Land Unavailability

Chandler Lutz
,
University of California-Los Angeles
Ben Sand
,
York University

Abstract

We process high resolution satellite imagery to construct novel datasets that capture the geographic determinants of housing supply: The percentage of undevelopable land – Land Unavailability – and its complement, buildable land. Our Land Unavailability measure expands on the popular proxy from Saiz (2010)by (1) using higher resolution satellite imagery from the USGS; (2) more accurate geographic boundaries; and (3) multiple levels of disaggregation. Using highly disaggregated data we show that Land Unavailability is uncorrelated withhousing demand proxies, validating Land Unavailability as an instrument for house prices; that the geographic components of Land Unavailability provide important incremental predictive power for house prices; and previous studies that employed limited land unavailability datasets underestimated the impact of house prices on unemployment during the Great Recession by 30%. With our buildable land dataset we then test the supply side speculation theory that aims to explain the previously puzzling large house price growth in traditionally elastic housing markets. In line with theory, results document that housing markets with intermediate amounts of buildable land, those that are elastic in the shortrun but plausibly inelastic in the long run, experienced abnormally large houseprice growth during the 2000s. Land Unavailability Data: https://github.com/ChandlerLutz/LandUnavailabilityData

Do New Housing Units in Your Backyard Raise Your Rents?

Xiaodi Li
,
New York University

Abstract

There is a growing debate about whether new housing units increase rents for immedi- ately surrounding apartments. Some argue new market-rate development produces a supply effect, which should alleviate the demand pressure on existing housing units and decrease their rents. Others contend that new development will attract high-income households and new amenities, generating an amenity effect and driving up rents. In this paper, I contribute to this debate by estimating the impact of new high-rises on nearby residential rents, residential property sales prices, and restaurant openings in New York City. To address the selection bias that developers are more likely to build new high-rises in fast-appreciating areas, I restrict the sample to residential properties near approved new high-rises and exploit the plausibly exogenous timing of completion conditional upon the timing of approval. I provide event study evidence that for every 10% increase in the housing stock, rents decrease 1% and sales prices also decrease within 500 feet. In addition, I show that new high-rises attract new restaurants, which is consistent with the hypothesis about amenity effects. However, I find that the supply effect is larger, causing net reductions in the rents and sales prices of nearby residential properties.

Landlord Rights, Evictions, and Rent Affordability

Thao Le
,
Georgia State University
Edward Coulson
,
University of California-Irvine
Lily Shen
,
Clemson University

Abstract

Policymakers have long been seeking to reduce eviction-induced poverty by enacting eviction control ordinances. However, overly strict landlord regulations can impose unintended negative consequences and ultimately make rental houses less affordable. In this paper, we provide a theoretical demonstration that strict landlord regulations increase the cost of evictions and eventually reduce rent affordability. To test this prediction, we construct an index to measure the level of the legal protection of landlord rights for each state in the U.S. On the one hand, we nd that rental houses are more affordable in areas where landlords have stronger rights: a one-unit increase in the landlord-rights index (i.e., more landlord-friendly) is associated with a 1.7 percent decrease in rents and a 5.7 percent increase in vacancy rate. On the other hand, it is associated with a 10 percent increase in eviction rates. Taken together, our findings highlight an important trade-off between tenant protection and rent affordability.
Discussant(s)
Desen Lin
,
University of Pennsylvania
Joseph Williams
,
Professors Capital
Randal Verbrugge
,
Federal Reserve Bank of Cleveland
Ingrid Gould Ellen
,
New York University
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
  • K2 - Regulation and Business Law