The 2019 Rena Sivitanidou Annual Research Symposium was held at the University of Southern California University Club on March 5th, 2019. This symposium featured a panel of more than 20 leading scholars in real estate economics drawn from both academic and policy institutions. Participants came from University of Southern California, UC Irvine, UC Los Angeles, Cal State Fullerton, UC Riverside, University of Texas at Austin, etc... These scholars gathered at USC to share their recent findings and opinions on the past and future developments of the housing market and how they related to the American economy.
The Lusk Annual Research Symposium is held in honor of Rena Sivitanidou, an associate professor of real estate planning and development in the School of Policy, Planning, and Development and an expert on the nature and dynamics of land rents. She was considered an outstanding teacher, researcher and colleague, Sivitanidou won the school's Planning and Development Outstanding Teacher Award for every one of the eight years she taught at USC. She unfortunately passed away in her early 40s due to illness. This research symposium carries forward her initative of furthering knowledge in the fields of Real Estate and Urban Economics.
The day-long symposium started with a welcome speech from Richard Green, the Director of the Lusk Center for Real Estate and Jorge De La Roca, the Research Director of the Lusk Center for Real Estate and Associate Professor of Public Policy at the University of Southern California. The symposium continued with seven sessions of presentations. Each presentation was followed by a discussion and a Q&A section. These sessions covered a wide range of cutting-edge topics within the real estate economics interacting with finance, macroeconomics, and urban economics.
Matt Freedman, Department of Economics, UC Irvine
Title: Subsidized housing investment, neighborhood interactions, and local amenities: Evidence from a tax credit lottery (joint with Wyatt Clarke)
This paper examines the private response to tax incentives for residential investment as well as the nature and scope of housing externalities by exploiting the lottery structure of Missouri's Neighborhood Preservation Act (NPA). The NPA offers tax credits to homeowners and developers that improve or expand the owner-occupied housing stock in low-income areas. Taking advantage of the random assignment of NPA tax credits and detailed property-level data,we find that the program increases construction activity over and above what would have occurred in its absence. There are positive but modest and highly localized spillovers of NPA-subsidized housing investment on neighbors' investment behavior and property values. The results shed light on the importance of neighbor interactions and amenity effects in local housing markets.
Discussant: Edward Kung, College of Social Sciences, Economics Department, University of California, Los Angeles
Linna Zhu, Sol Price School of Public Policy, University of Southern California
Title: Has the effect of housing wealth on household consumption been overestimated? New evidence on magnitude and allocation (joint with Jung Hyun Choi)
The effect of housing wealth on household consumption is puzzling as existing empirical results do not match with theoretical predictions. Existing theories – life cycle theory, permanent income hypothesis and user cost model – suggest that housing wealth impact should be small. However, most prior studies find that Marginal Propensity to Consume (MPC) out of housing wealth ranges between 0.04 to 0.09, indicating material impact of housing wealth on household consumption. Motivated by this discordance, this study uses the Panel Study of Income Dynamics to provide a step by step analysis to show how the housing wealth effect decreases as biases from unobserved variables are properly addressed. Once households’ unobserved preferences towards consumption and their future expected income are controlled for, our estimated MPC drops significantly. We also directly control for home equity extraction to disentangle the pure wealth effect channel and the collateral channel. Our findings show that a one percent increase in perceived housing wealth is associated with 0.01-0.02 percent increase in real, non-housing consumption after directly controlling for the collateral channel. Our estimated magnitude of housing wealth effect is much smaller than previous findings. Additionally, we find heterogeneity in MPCs across consumption categories – consumptions that are necessary in daily lives such as food and transportation do not respond to changes in perceived housing wealth while households increase their spending on clothes and recreation as housing wealth increases. We also employ an IV approach to disentangle permanent and transitory housing wealth shocks. Our results indicate that it is the deviation between perceived house price appreciation rate and the real house price appreciation rate in fundamental values that drives this small magnitude of MPC out of housing wealth in the short run (in cloth and recreation) and this housing wealth effect will move towards to zero in the long run as the perception converges with the fundamental values.
Discussant: Lingxiao Li, Mihaylor College of Business & Economics, Cal State Fullerton
Chris Redfearn, Sol Price School of Public Policy, University of Southern California
Title: Giffen and Veblen go house shopping: The market for inferior, normal, and luxury locations
Discussant: Edward Coulson, Paul Merage School of Business, UC Irvine
D'Arcy Coolican (Andreesan Horowitz)
Mike Egesdal (Airbnb)
Igor Popov (Apartment List)
Issi Romem (Trulia)
Richard Green (USC Lusk Center for Real Estate)
Title: Monetary policy heterogeneity across space: Evidence from the US mortgage market (joint with Rodney Ramcharan and Edison Yu)
This article studies how a shock to the financial health of banks, caused by a decline in the asset markets, affects the real economy. The land market collapse in Japan provides an ideal testing field in separating the impact of a loan supply shock from demand shocks. I find that banks with greater real estate exposure have to reduce lending. Firms' investment and market valuation are negatively associated with their top lender's real estate exposure. The lending channel is economically important: it accounts for one-third of lending contraction, one-fifth of the decline in investment, and a quarter of value loss.
Title: Optimal unemployment insurance across space
The unemployment insurance system in the U.S. does not provide incentives to look for jobs outside local labor markets. In this paper I introduce relocation subsidies as a supplement to unemployment beneﬁts, and study their eﬀects on unemployment, productivity and welfare. I build a job search model with heterogeneous workers and multiple locations, in which migration is impeded by moving expenses, cross-location search frictions, borrowing constraints, and utility costs. I calibrate the model to the U.S. economy, and then introduce a subsidy that reimburses a part of the moving expenses to the unemployed and is ﬁnanced by labor income taxes. During the Great Recession, a relocation subsidy that pays half of the moving expenses would lower unemployment rate by 0.36 percentage points (or 4.8%) and increase productivity by 1%. Importantly, the subsidies cost nothing to the taxpayer: the additional spending on the subsidies is oﬀset by the reduction in spending on unemployment beneﬁts. Unemployment insurance which combines unemployment beneﬁts with relocation subsidies appears to be more eﬀective than the insurance based on the beneﬁts only.
Discussant: Victor Ortego-Marti, School of Economics, UC Riverside
Title: Urban growth and its aggregate implications (joint with Diego Puga)
We develop an urban growth model where human capital promotes entrepreneurship and raises city productivity. Land-use regulation balances commuting and housing costs against productivity gainstobeneﬁtlocalresidents. Systematicdeterminantsandproductivity shocks drive city growth, generating realistic city-size distributions. Cities experience parallel growth in expectation, while subject to ups and downs around this common trend. Growth of existing cities and net city entry accommodate aggregate population growth. Matching key empirical moments at the city and economy-wide levels, we explore the contribution of cities to aggregate growth and income levels and the economy-wide consequences of land use regulations.
Discussant: Matthew Kahn, USC Dornsife College of Letters and Arts, Economics Department, University of Southern California
Title: City characteristics, land prices and volatility (KEYNOTE)
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