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Housing and Financial Stability

Paper Session

Saturday, Jan. 4, 2020 2:30 PM - 4:30 PM (PDT)

Marriott Marquis, Cardiff
Hosted By: Econometric Society
  • Chair: Rebecca Diamond, Stanford University

The Effect of Foreclosures on Homeowners, Tenants, and Landlords

Rebecca Diamond
,
Stanford University
Adam Guren
,
Boston University
Rose Tan
,
Stanford University

Abstract

How costly is foreclosure? Estimates of the social cost of foreclosure typically focus on financial costs. Using random judge assignment in Cook County, Illinois, we find evidence of significant non-pecuniary costs of foreclosure, particularly for foreclosed-upon homeowners. Foreclosure causes housing instability, reduced homeownership (30%), moves to worse neighborhoods in terms of income (17% lower) and school quality, and personal trauma such as divorce (7 percentage points higher). We find more limited and smaller negative effects for renters who are evicted due to landlord foreclosure and for landlords, suggesting the combination of eviction and the financial loss of foreclosure is particularly potent. Our estimates imply that foreclosure is far more costly than current estimates imply and that the costs are disproportionately borne by owners who lose their home.

The Effects of Evictions on Low-Income Families

Robert Collinson
,
University of Notre Dame

Abstract

Each year in the U.S., more than two million renter households report being threatened with an eviction notice. Over half of these households are families, accounting for more than 3 million children. However, there is little causal evidence on how evictions affect low-income families. We assemble novel data linking individuals and their children from housing court cases in New York City to administrative data and leverage the random assignment of cases to courtrooms to estimate the causal effect of evictions on a range of adult and child outcomes. For adults, we investigate the effects of eviction on homelessness, health, earnings, employment, and incarceration. We find that eviction substantially increases homelessness, but has smaller effects on adult earnings and employment. We then examine how acute housing instability affects parental and adolescent investment in human capital, as well as the human capital formation of young children. Using a sample of more than 100,000 public school students with a parent or guardian in housing court, we estimate the effects of eviction on children’s test scores, attendance, and degree completion.

Does Eviction Have Spillovers on Children?

Winnie van Dijk
,
University of Chicago
John Eric Humphries
,
Yale University
Daniel Tannenbaum
,
University of Nebraska-Lincoln
Nicholas Mader
,
University of Chicago

Abstract

Recent research has shown that, although evictions are preceded by severe build-up of financial strain, they have small causal effects on outcomes associated with poverty for adults. However, these findings do not speak to an important type of spillover caused by an eviction: its impact on the well-being of children of evicted households. In this paper, we consider whether eviction impacts educational achievement. Evaluating this link provides insight into the importance of housing conditions in driving urban poverty and reducing the economic productivity of the next generation. We use a newly-assembled, comprehensive data set on the near-universe of residential evictions and public school records in a large urban school district. We consider outcomes such as school mobility, absenteeism, misconduct, and academic achievement, and present descriptive as well as quasi-experimental evidence.

Why Do Borrowers Default on Mortgages? A New Method For Causal Attribution

Pascal Noel
,
University of Chicago
Peter Ganong
,
University of Chicago

Abstract

There are two prevailing theories of borrower default: strategic default -- when debt is too high relative to the value of the house -- and adverse cash-flow events -- such that payments are too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive. We implement the method using monthly administrative data linking income and mortgage default. Our central finding is that adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models of mortgage default, we show that it is consistent with models where the private cost of mortgage default is high. This new identification method may be useful in other empirical settings where treatment is measured with error.
Discussant(s)
Matthew Notowidigdo
,
Northwestern University
Michael Mueller-Smith
,
University of Michigan
Anna Aizer
,
Brown University
Joao Cocco
,
London Business School
JEL Classifications
  • R5 - Regional Government Analysis