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Housing Markets

Paper Session

Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)

Marriott Marquis, Malibu City
Hosted By: American Economic Association
  • Chair: Don Schlagenhauf, Federal Reserve Bank of St. Louis

Capital Flows, Asset Prices, and the Real Economy: A "China Shock" in the US Real Estate Market

Zhimin Li
,
Peking University
Leslie Sheng Shen
,
University of California-Berkeley and Federal Reserve Board
Calvin Zhang
,
Federal Reserve Bank of Philadelphia

Abstract

We analyze the house price and real economic effects of home purchases by foreign Chinese in the US. Using housing transaction data in California from 2001 to 2013, we document a "China shock" in the US real estate market driven by government policies restricting home purchases in China: the share of foreign Chinese housing purchases by value and count in California increased twentyfold after 2007. These purchases exhibit a form of "home bias" as they are concentrated in zip codes historically populated by ethnic Chinese, reaching more than 12% of total transactions in these neighborhoods in 2013. We exploit the spatial variation of historical ethnic Chinese settlement across zip codes to identify differential exposure to real estate capital inflows from China. We find that foreign Chinese housing purchases have a significant and positive impact on local housing and labor markets. A one standard deviation increase in exposure to these purchases explains 19% and 16% of the cross-zip-code variation in local house prices and employment, respectively, with the latter effect concentrated in non-tradable sectors. We present evidence that the labor market response is transmitted through a housing net worth channel and highlight the stabilizing role of foreign capital inflows during economic downturns.

Global Housing Markets and Monetary Policy Spillovers: Evidence from OECD Countries

Shikong (Scott) Luo
,
University of Alabama
Jun Ma
,
Northeastern University

Abstract

What are the driving forces of housing market volatilities across countries in the context of financial globalization? To address this broad question, we integrate the Campbell-Shiller decomposition with a dynamic factor model and apply this approach to the housing price-rent ratios in 17 OECD countries. Our novel approach allows us not only to assess geographically the relative importance of global and country-specific factors in explaining the housing market volatilities, but also to distinguish economically between those housing market volatilities attributable to different economic driving forces. We find that the housing market volatility for an average country is mainly driven by the global factors, especially during the years leading up to the 2007-2008 financial crisis. Furthermore, among the global factors, it is the global housing risk premium that is primarily responsible for the housing market volatility. Using a Structural Vector-Autoregressive (SVAR) model identified with the Instrumental Variable (IV) method, we find that an unexpected U.S. monetary policy tightening is typically followed by a persistent and statistically significant rise in the global housing risk premium. Our findings are broadly in line with the credit or risk-taking channel of the monetary policy spillovers from the United States to the global financial markets.

Housing Prices and Consumption: The Role of News Media

Hayoung Kim
,
University College London

Abstract

The observed relationships between housing prices and consumption are highly inconsistent over time. This paper sheds light on the heterogeneity by relating behavioral models to the housing wealth effect. As households’ beliefs/expectations on house prices are potentially a key driver of fluctuations in the housing market, behavioral models suggest that households extrapolate from past prices available only with a significant lag to infer the unobservable current-period market-wide demand state. By exploiting local newspaper contents in the U.S., I find that more newspaper articles conveying house price information can make household consumption more elastic with respect to regional housing prices. The regression results are statistically significant only for homeowners and only when a housing news article includes real estate terms in its headline. The findings suggest that information on past prices is a main source of housing wealth effects, highlighting the importance of information agents or information interventions in shaping household behaviors in housing markets.

Second-Home Buying and the Housing Boom and Bust

Daniel Garcia
,
Federal Reserve Board

Abstract

I estimate the effects of second-home buying (existing homeowners acquiring additional properties) on the housing boom and bust, by constructing a new measure and using a new identification strategy based on the rise in out-of-town demand for second homes in vacation areas during the housing boom. Areas with plausibly exogenous higher second-home buying experienced a sharper boom and bust: faster growth in house prices and construction employment from 2000 to 2006, and a sharper contraction from 2006 to 2010. The results suggest that changes in credit demand were important in amplifying the recent housing cycle.

The Last Mile Matters: Impact of Dockless Bike Sharing on Subway Housing Price Premium

Junhong Chu
,
National University of Singapore
Yige Duan
,
University of British Columbia
Xianling Yang
,
Lianjia Research Institute
Li Wang
,
Lianjia Research Institute

Abstract

Dockless bike sharing provides a convenient and affordable means of transport for urban residents. It solves the “last-mile problem” in public transport by reducing the travel cost between home and subway stations and thus increasing the attractiveness of distant apartments. This may affect the relationship between housing price and distance to subway and reduce the price premium enjoyed by proximate apartments. Using resale apartment data in 10 major cities in China, a difference-in-differences approach at the apartment level, and a two-step estimator at the city-month level, we find that the entry of bike sharing reduces the housing price premium by 29% per km away from a subway station. The effect is equivalent to a reduction of 1,893–2,127 CNY (282–317 USD) in commuting costs per household per annum over 30 years. The effect is driven by a relative increase in the listing price of, and in the demand for, apartments distant from vis-à-vis proximate to subway stations.

Local Land Use Regulation and Housing Prices: How Relative Restrictiveness and Income Matter

Desen Lin
,
University of Pennsylvania
Susan M. Wachter
,
University of Pennsylvania

Abstract

Local land use regulation may restrict housing supply, with more stringent regulation associated with higher local housing prices, as demonstrated by the empirical literature. If so, demand spillover to surrounding communities, may moderate local house price increases. We develop and test a model for how spillovers affect local price outcomes. Using data for California, we show that relative income and relative restrictiveness matter for the impact of local regulation on local housing prices.
JEL Classifications
  • F3 - International Finance