Professor of Real Estate and Business Economics & Public Policy, the Wharton School, University of Pennsylvania; Research Associate, National Bureau of Economic Research (NBER), Cambridge, Massachusetts
Superstar Cities
Differences in house price and income growth rates between 1950 and 2000 across metropolitan areas have led to an ever-widening gap in housing values and incomes between the typical and highest-priced locations. We show that the growing spatial skewness in house prices and incomes are related and can be explained, at least in part, by […]
Housing and the Financial Crisis
Conventional wisdom held that housing prices couldn’t fall. But the spectacular boom and bust of the housing market during the first decade of the twenty-first century and millions of foreclosed homeowners have made it clear that housing is no different from any other asset in its ability to climb and crash. Housing and the Financial […]
How Parents Influence the Wealth Accumulation of Their Children
We decompose the channels through which parents and children have correlated net worth using a novel administrative data set from Sweden that follows a panel of parents matched to their grown children. We find that children’s initial endowments of net worth and their subsequent net worth accumulations are positively correlated with parents’ net worth. There […]
Can Owning a Home Hedge the Risk of Moving?
Conventional wisdom holds that one of the riskiest aspects of owning a house is the uncertainty surrounding its sale price, especially if one moves to another housing market. However, households who sell a house typically buy another house, whose purchase price is also uncertain. We show that for such households, home owning often hedges their […]
Timing the Housing Market
We create reliable measures of the cost of owning and the cost of renting that enable us to compare the level of rents and ownership costs across MSAs. We show that households can predict whether renting or owning will end up being less expensive ex post. This exercise is more robust than trying to predict […]
House Price Moments in Boom-Bust Cycles
This paper describes six stylized patterns among housing markets in the United States that potential explanations of the housing boom and bust should seek to explain. First, individual housing markets in the U.S. experienced considerable heterogeneity in the amplitudes of their cycles. Second, the areas with the biggest boom-bust cycles in the 2000s also had […]
Safety in Renting
A recent decline in the home ownership rate raises the possibility that people now realize that home owning is too risky for some. However, we should not forget that renting also is risky for others. This article outlines two sources of risk that owning avoids and renting does not – by owning, low-mobility households can […]
Does Home Owning Smooth the Variability of Future Housing Consumption?
We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner’s house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census micro-data, […]
Understanding and Mitigating Rental Risk
The decision of whether to rent or own a home should involve an evaluation of the relative risks and the relative costs of the two options. It is often assumed that renting is less risky than homeownership, but that is not always the case. Which option is riskier depends on the risk source and household […]
Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing
We analyze how changes in the income tax deduction for mortgage interest would affect loan-to-value ratios on owner-occupied homes, the distribution of income tax liabilities, and the consumption of housing services. Using the 2004 Survey of Consumer Finances, we estimate that repealing the mortgage interest deduction in 2003 would have raised federal and state income […]
Commitment, Risk and Consumption: Do Birds of a Feather Have Bigger Nests?
We show that incorporating consumption commitments into a standard model of precautionary saving can complicate the usual relationship between risk and consumption. In particular, we present a model where the presence of plausible adjustment costs can cause a mean-preserving increase in unemployment risk to lead to increased consumption. The predictions of this model are consistent […]
Feedback between Real-Estate and Urban Economics
This paper considers the implications of increasing land supply constraints in the United States on urban demand. First, because shifts in demand are now capitalized more into the price of land, house prices in some metropolitan areas have grown increasingly unaffordable to typical households. This might have an effect on the fundamental character of such […]
Dispersion in House Price and Income Growth across Markets: Facts and Theories
Urban success increasingly has taken two different forms in the post-war era. One involves very high house price growth with relatively little population growth. The other pairs strong population expansion with mild house price appreciation. We document the heterogeneity across MSAs in the long-run house price growth rate and show that house price growth and […]
Spatial Variation in the Risk of Home Owning
Spatial Variation in the Risk of Home Owning in Edward Glaeser and John Quigley(eds.),, Housing Markets and the Economy, Risk Regulation, and Policy Lincoln Institute of Land Policy(2009), pp 83-112 (PDF)
Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income
Federal income tax policy affects the cost of homeownership for many households. Popular discussions of the favorable tax treatment of owner occupied housing usually focus on the tax-deductibility of mortgage interest and property tax payments, as well as the specialized tax rules that affect housing capital gains. Academic discussions, in contrast, emphasize the exclusion of […]
U.S. House Price Dynamics and Behavorial Finance
We examine the relative roles of fundamentals and psychology in explaining U.S. house price dynamics. Using metropolitan area data, we estimate how the house price-rent ratio responds to fundamentals such as real interest rates and taxes (via a user cost model) and availability of capital, and behavioral conjectures such as backwards-looking expectations of house price […]
Net Worth and Housing Equity in Retirement
This paper documents the trends in the life-cycle profiles of net worth and housing equity between 1983 and 2004. The net worth of older households significantly increased during the housing boom of recent years. However, net worth grew by more than housing equity, in part because other assets also appreciated at the same time. Moreover, […]
Urban Housing Demand
Urban Housing Demand , The New Palgrave Dictionary of Economics, Second Edition, Steven Durlauf and Lawrence Blume, eds. (2008, Palgrave MacMillan) (PDF)
Do Low-Income Housing Subsidies Increase the Occupied Housing Stock?
A necessary condition for justifying a policy such as subsidized low-income housing, either via tenant-based rental assistance or construction of public or private projects, is that it has a real effect on market outcomes. In this paper, we examine one aspect of the real effect of subsidized housing—does it increase the housing stock? If subsidized […]
Assessing High House Prices: Bubbles, Fundamentals and Misperceptions
We construct measures of the annual cost of single-family housing for 46 metropolitan areas in the United States over the last 25 years and compare them with local rents and incomes as a way of judging the level of housing prices. Conventional metrics like the growth rate of house prices, the price-to-rent ratio, and the […]
Owner-Occupied Housing as a Hedge Against Rent Risk
Many people assume that the most significant risk in the housing market is that homeowners are exposed to fluctuations in house values. However, homeownership also provides a hedge against fluctuations in future rent payments. This paper finds that, even though house price risk endogenously increases with rent risk, the latter empirically dominates for most households […]
The Asset Price of Capital Gains Taxes: Evidence from the Taxpayer Relief Act of 1997 and Publicly-Traded Real Estate Firms
We provide new evidence that corporate-level investment subsidies can be substantially capitalized into asset prices by examining the relative stock price performance of publicly traded companies in the real estate industry that should have been differentially affected by the capital gains tax rate reduction enacted in the Taxpayer Relief Act of 1997. By comparing real […]
Geography and the Internet: Is the Internet a Substitute or Complement for Cities?
We study the tendency to connect to the Internet, and the online and offline shopping behavior of connected persons, to draw inferences about whether the Internet is a substitute or a complement for cities. We document that larger markets have more locally-targeted online content and that individuals are more likely to connect in markets with […]
The (Un)Changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000
Even though the top marginal income tax rate has fallen substantially and the tax code has become less progressive since 1979, the tax benefit to homeowners was virtually unchanged between 1979-1989, and then rose substantially between 1989-1999. Using tract-level data from the 1980, 1990, and 2000 censuses, we estimate how the income tax-related benefits to […]
The Spatial Distribution of Housing-Related Ordinary Income Tax Benefits
We estimate how tax subsidies to owner-occupied housing are distributed spatially across the United States and find striking skewness. At the state level, the mean tax benefit per owned unit in 1990 ranged from $917 in South Dakota to $10,718 in Hawaii. The dispersion is slightly greater when benefit flows are measured at the metropolitan-area […]
Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil
We examine two factors that might explain the extent of air traffic delays in the United States: network benefits due to hubbing and congestion externalities. Airline hubs enable passengers to cross-connect to many destinations, thus creating network benefits that increase in the number of markets served from the hub. Delays are the equilibrium outcome of […]
Comment on Tax Incentives and the City
Comment on Tax Incentives and the City , Brookings-Wharton Journal on Urban Affairs (2002), pp. 124-130.
Chapter 5: The Spatial Distribution of Mortgage Interest Deduction Benefits Across and Within Metropolitan Areas in the United States
Chapter 5: The Spatial Distribution of Mortgage Interest Deduction Benefits Across and Within Metropolitan Areas in the United States with Joseph Gyourko, in Richard Green and Andrew Reschovsky, eds, Using Tax Policy to Increase Homeownership Among Low- and Moderate-Income Households: Final Report to the Ford Foundation, November 2001, pp. 137-186.
The Spatial Distribution of Housing-Related Tax Benefits in the United States.
Using 1990 Census tract-level data, we estimate how tax subsidies to owner-occupied housing are distributed spatially across the United States, calculating their value as the difference in taxes currently paid by home owners and the taxes owners would pay if there were no preference for investing in one’s home relative to other assets. The $164 […]
Capital Gains Realizations and Tax Rates: New Evidence from Time Series
Using data from the 1986 through 1997 period, we update the time series evidence on the response of capital gains realizations to tax rates. In general, we find higher long-run elasticities than reported in many previous studies, but the estimates decrease substantially when the influence of 1986 is effectively removed. We explore several explanations for […]
The REIT Vehicle: Its Value Today and the Future
The real estate investment trust (REIT) structure has come under increasing scrutiny given the problems the structure poses for finns wishing to retain earnings in depressed real estate equity and debt markets. We estimate the net benefits of the structure to be no more than 2%-5% of industry equity market capitalization, although the benefits are […]