sharing the risk of home ownership a portfolio approach this paper examines the relationships among the desirability of home ownership price risks and the return of housing investment it argues that price risks may undermine the desirability of ownership using both a theoretical and an empirical approach the theoretical model studies aspatially the equilibrium house prices in a two good pure exchange economy where investors consumers differ in their level of risk aversion it shows that larger price risks and higher level of risk aversion decrease the attractiveness of owning a house the empirical component uses current status data and a proportional hazard model to show the effect of risks and returns on households hazard rates to be owners the implication points to the inadequacy of the conventional housing finance arrangements which provide little help for households to diversify or hedge the risk of home ownership

liquidity constraints and housing prices theory and evidence from the va mortgage program abstract this paper employs a simple intertemporal model to show that presence of liquidity constraints can depress the price of a durable good below its net present rental value regardless of the overall supply elasticity the existence of price effects implies that the relaxation of liquidity constraints is not pareto improving and may in fact be regressive historical evidence which exploits the fact that a clearly identifiable group war veterans enjoyed the most favored access to mortgage credit after world war ii supports the model the results suggest that more recent mortgage market innovations have served primarily to increase prices rather than home ownership rates and that such innovations have the potential to exacerbate socioeconomic disparities in ownership rates

repressed inflation queuing and the resale of goods in a centrally planned economy abstract the barro grossman repressed inflation model is reformulated incorporating the goods rationing scheme widely observed in centrally planned economies the informal queue we assume there are two types of individual differntiated by work ability this enables inclusion of another feature found in practice the private resale of goods less able individuals queue to buy goods both to consume and to resell to more able individuals the latter spend their time working for a relatively high wage rather than queuing among the comparative statics results is that the supply multiplier is negative positive if goods and leisure are gross substitutes complements

the future price of houses mortgage market conditions and the returns to homeownership the purpose of this paper is to provide a simple framework in which to analyze the impact of a perfectly anticipated increase in the future selling price of houses on current house purchase decisions in the presence of capital market imperfections since implicitly it is the after tax selling price of houses that is considered this analysis is equivalent to one of a decrease in the capital gains tax on houses at retirement in this paper assumptions about homeownership mortgage markets and liquidity constraints are added to a life cycle model of asset accumulation taking the date of house purchase as exogenous it is shown that the impact of an exogenous increase in the expected future price of houses depends on current mortgage market conditions the future price of houses relative to the current price and the ratio of liquid assets to future labor income as well as preferences also a simple model of a market for houses is presented to analyze the impact of an increase in the expected future price of houses on the current market clearing price the mortgage market and the redistribution of the housing stock to consumers according to their wealth and liquidity characteristics in the life cycle model as exposited by franco modigliani and robert brumberg an increase in consumption in one period requires a decrease in consumption in another period when owner occupied housing is added to the model the tradeoff between consumption in different periods becomes more complex purchasing a larger house entails an increase in the consumption of housing services and an increase in assets held in the form of a house but a decrease in either nonhousing consumption or the holdings of an alternative asset or both the response of the consumer to price or income changes is also limited by financial market constraints capital market imperfections have been introduced into the life cycle model by a number of authors see for example lester thurow thayer watkins thomas russell clark wiseman and christopher pissarides and several authors have explicitly considered the impact of capital market imperfections on the house purchase decision see william dolde and james tobin william poole donald lessard and modigliani and dolde most similar to this study although developed independently roland artle and p varaiya s paper includes the theoretical incorporation of the house purchase decision into a life cycle model they consider the problem of choosing the date of house purchase while treating the level of consumption of housing services as exogenous in the life cycle model in this paper the consumer chooses the size of house to purchase at an exogenous date to use the life cycle model in the framework of a market of houses it is assumed that the stock of houses and the prices of all other goods including the rate of return on the alternative asset are fixed all consumers are identical except perhaps for initial wealth as noted by irving fisher p 325 in a world of perfect foresight and perfect markets the rates of return on all assets are equated in equilibrium if markets are perfect with the stock of houses and other prices fixed the present price of houses will rise by an amount equal to the present value of an exogenous increase in a future price of houses when mortgage market imperfections are introduced this relationship no longer holds and a future price increase may result in a redistribution of the current stock assistant professor of economics university of michigan this paper is an extension of a chapter of my doctoral thesis at the university of wisconsin madison the helpful comments of donald d hester charles a wilson hal varian and george borts are gratefully acknowledged

the welfare costs of rationing by waiting with price controls and rationing by waiting rational consumers increase the quantity boughtperpurchase this individually rational response is socially wasteful and the cost of making it is a deadweight loss this cost plus the value of time spent in queues may exceed the total rent transferred from suppliers to consumers by price controls i e the value of resources spent competing for the rent may exceed the rent itself this point is illustrated by an empirical application to gasoline price controls rent seeking exhausts an estimated 116 percent of the rent trangerred the efficiency of the price system is often illustrated lby pointing to the obvious wastes associated with alternative allocation mechanisms for example the queues that accompany price controls and first come first served allocations although rationing by waiting wastes resources in a dramatically visible fashion the magnitude of the waste and the factors that determine it seldom have been examined empirically moreover existing theory on the subject is incomplete unless the first come first served rule is precisely specified consumers will compete for available supplies in ways other than waiting in the model developed below queues cause consumers to compete by increasing amounts bought per trip to the market the analysis demonstrates that such individually rational adjustments only increase the welfare cost of rationing by waiting and thus are socially self defeating the theoretical model is illustrated empirically by estimating the welfare costs of a market wide ceiling on gasoline prices this application was motivated by the availability of two key pieces of information the value of time spent in gasoline queues and the effect of waiting lines on amounts bought per purchase this information was obtained from a survey of motorists conducted during the era of federal gasoline price regulations to focus on competition among consumers one of the inefficiencies that results from price controls is ignored the supply reduction leading to the

housing markets consumption and financial liberalisation in the major economies abstract this paper analyses the implications of relaxing credit restrictions in housing finance markets a theoretical model of the interaction of financial and housing markets and forward looking agents is developed the effects of financial liberalisation in the model are analysed and evidence from the u s a and u k on the impact of easing credit restrictions is presented estimates are also made of the degree to which credit restrictions may bind on households in those countries where the range of mortgage products on offer is still more limited than in the u k and u s a simulations are undertaken to gauge the effect on consumption saving and bequests of wealth of possible future convergence in national systems of housing finance

the influence of black markets on a queue rationed centrally planned economy abstract in centrally planned economies in which prices are fixed and the rationing mechanism is waiting line queues we show that an equilibrium of waiting times exists we then introduce a black market in which individuals can trade commodities that they have acquired through the official economy an equilibrium of black market prices and waiting times is shown to exist further the economy with a black market is queue efficient however the introduction of black markets is not necessarily a pareto improvement over an economy without black markets even when we allow winners to compensate losers

tax expenditures and other programs to stimulate housing do we need more abstract discussions to aid the housing industry raise several questions first does stimulation of housing demand require new direct subsidy programs and second are any programs to increase demand worth their costs to society the results in this paper indicate that the answer to both questions is no the existing subsidy to homeownership in the tax code is when combined with mortgage instruments that offset cash flow problems fully capable of generating large increases in demand at the cost of significant tax expenditures and the social benefits of increased housing demand are shown to be worth only about 60 of their costs consequently increasing housing demand can be readily achieved but doing so will be costly to the government and inefficient for society

reform in eastern europe a general equilibrium model with distortions in relative prices and factor markets this paper presents an analysis of reforms using a simple general equilibrium model with production the model illustrates some of the distortions remaining in the eastern european countries as they adopt market oriented policies and it shows that price reforms should take priority if simultaneous reform is not possible specifically the authors examine reforms of relative prices of output goods and liberalization of the capital market the model is solved numerically showing that restrictions on capital mobility should be retained until after price distortions have been removed

the transition to a market economy pitfalls of partial reform we present a theory of a partial economic reform of a planned economy similar to the one that took place in russia since 1988 and in china earlier in such a reform some markets are liberalized in the sense that producers can sell output to whomever they want including private firms at free prices but at the same time must sell to state firms at state prices we show that such a reform can result in a substantial diversion of subsidized inputs away from state firms and toward private firms even when state firms value these inputs more the result may be a reduction of total output the simple analysis sheds light on many consequences of the soviet reform such as breakdown of coordination of production increased state policing of delivery quotas prohibitions of trading cooperatives and opposition to privatization the model also explains why partial reform failed in russia but worked in china

a structural model of the demand for owner occupied housing abstract the goal of the analysis in this paper is to estimate a structural model of the demand for owner occupied housing in our framework the buyer selects the value of the house the size of the mortgage and the length of stay in the house we estimate a housing demand equation which includes both the length of stay and the loan to value ratio as endogenous variables one empirical result of interest is that the income elasticity of demand for housing found in the structural housing demand equation is much larger than the value estimated in the reduced form we also point out some occasions when it is important to distinguish between a reduced form and a structural model of housing choices

general equilibrium analysis of price controls a computational approach this paper presents a computational general equilibrium framework for evaluating the welfare costs associated with economy wide price controls other than traditional commodity specific partial equilibrium analyses most empirical literature on price controls concentrates on macroeconomic issues such as the impact on inflation and unemployment here we seek to reorient empirical literature on the effects of these controls towards efficiency losses from resource misallocation by providing a framework which can be used to address the issue of how large these economic inefficiencies are and who gains and who loses from them in this paper we present a general equilibrium computational framework for evaluating the welfare costs associated with economy wide price controls price controls have been employed by governments all over the world during war and peace in response to all manners of threats both real and imaginary and in all ages 2 other than traditional commodity specific partial equilibrium analyses most empirical literature on price controls concentrates on macroeconomic issues such as the impact on inflation and unemployment despite the fact that the main attack on price controls is usually in terms of their efficiency losses from resource misallocation here we seek to reorient the empirical literature on the effects of the controls by providing a framework which can be used to address the issue of how large these economic inefficiencies are and who gains and who loses from them we use a general equilibrium model in which the equilibrium mechanism in the presence of price controls is endogenously determined search costs these yield additional welfare losses under price controls beyond those associated with more traditional tax or tariff models the argument is that in an economy with price controls the greater the difference between controlled and market clearing prices the costlier it is for buyers and sellers to find each other and transact a similar approach has been taken recently in two other papers in which we have been involved see nguyen 1985 nguyen and whalley 1986 the difference here is that unlike these earlier papers we explicitly incorporate production and apply our approach to the issue of economy wide controls using data for an actual economy since either the buying or selling side of a price controlled market can be

microeconomic issues in the transition to a market economy evidence from developing countries suggests that a one sided preoccupation with macroeconomic issues may be unfortunate as macro stabilization programs tend to unravel in the presence of an inadequate micro adjustment for example kiguel and liviatan 1990 this finding is important because the socialist system introduced microeconomic distortions that probably transcend those observed in the third world the recent developments in poland yugoslavia and the soviet union also support the hypothesis that macro stabilization will be difficult to achieve in the transforming socialist economies in the absence of adequate micro adjustments in this paper i address what i consider to be the most important micro issues related to the transition from socialist to market economies i first summarize the initial microeconomic conditions and then describe the main changes that have taken place in the early stages of the transition finally i discuss the micro policy agenda that needs to be addressed if the transition is to be successful

housing appreciation mortgage interest rates and homeowner mobility abstract this paper presents a model of the optimal timing of tradeup which considers consumption and investment motives of homeownership households determine the optimal timing of trading up so as to maximize their intertemporal utility of both housing and nonhousing consumption first we consider current homeowners who already own a house and expect that they trade up to a more valuable house at some point in the future housing appreciation tends to induce an earlier optimal timing of trading up moreover housing appreciation makes current homeowners better off in terms of welfare however current homeowners suffer from a rise in mortgage interest rates second we consider first time home buyers who have decided to buy a house and expect to trade up to a more valuable house in the future their initial housing consumption is determined by an initial downpayment constraint in this case the effect of housing appreciation on the optimal timing of trading up is ambiguous and unlike current homeowners first time home buyers suffer from housing appreciation moreover as current homeowners first time home buyers suffer from a rise in mortgage interest rates most of the theoretical analytic results are ambiguous accordingly we perform numerical simulations based on the theoretical model in order to determine the most likely comparative effects for a stylized set of parameters as is apparent the model captures the recent observations on homewner mobility and suggests that macroeconomic variables such as housing appreciation and mortgage interest rates effect the optimal timing of trading up and homeowner s welfare nevertheless the model in this paper has several shortcomings which should be the subject of future research first transaction costs are ignored if transaction costs are incorporated the lock in effect from a rise in mortgage interest rates is well explained however the general analysis above is not altered in any essential way second multiple moves are not considered in this model therefore we concentrate on the timing of one tradeup as opposed to the timing and frequency of trading up in a different vein it would be interesting to test empirically the importance of the effects of macroeconomic variables on trading up by using microdata

effects of homeownership on household savings abstract causal effects of homeownership decisions on the level and composition of household savings accumulation are estimated genuine positive impacts on both total and nonhousing savings as a function of house value chosen are found the findings suggest however that the homeownership decision in conjunction with choice of an average owner occupied house value does not substantially alter the total amount of accumulated household savings

buying a home with a resale value location location location we develop a dynamic multiregion model where a household s choice of housing location depends on its current wealth and its current type and involves both consumption and investment considerations the relative strength of the consumption motive and the investment motive determines the equilibrium pattern of residential sorting a strong investment consumption motive implies sorting according to household type wealth the model predicts that large house price fluctuations are associated with a low degree of sorting by type this prediction is consistent with evidence from us metropolitan areas when income education and age are used as proxies for household type

house price dynamics and market fundamentals the parisian housing market the paper compares two methods to evaluate the effect of market fundamentals on housing price dynamics the first method follows the traditional two step procedures found in the literature in which

rationing queues and black markets several types of rationing and queue mechanisms are compared in a framework of general equilibrium type models under gross substitutability and normality assumptions about consumers walrasian demand during transition from rationing and queues to a market system a group of low income people loses the transition involves larger losses for this group if black markets prevail under rationing or queues while a group of high income consumers gains some other comparative statics results are developed for a queue model with black markets copyright 1993 by the econometric society

housing and endogenous long term growth abstract in this paper we develop an endogenous growth model where housing plays a role as a consumption and an investment good for households as an input to production and as a production sector we show that the long term endogenous growth rate for the economy while not affected by housing related preference parameters depends critically on housing related production parameters the key modeling assumption is that housing and other assets in the economy are not perfect substitutes with this we can show that the endogenous long term growth rate depends on the relative price of housing and other types of capital accordingly the effects of productivity shocks on growth can be understood through their effects on the relative asset price and the corresponding changes in capital intensity we show that productivity shocks to the three sectors of production manufacturing construction and educational and training activities have positive effects on long term growth for reasonable parameter values however the responsiveness of the long term growth rate to shocks in construction is greater than responsiveness to shocks in manufacturing

inflation and housing demand a new perspective abstract the effects of inflation on the housing market are investigated in this study of new house prices in 42 u s metropolitan areas from 1971 to 1978 the results show that estimates of the elasticity of real house prices with respect to the real user cost have been biased sharply downward owing to an errors in variables problem when the error term in estimating expected inflation is recognized explicitly the negative relationship between real house prices and real user cost is found to be very strong this analysis helps to resolve the conflict in the literature between the negative cash flow effects and the positive untaxed capital gains and declining real payment effects resulting from inflation

equilibrium under price controls with endogenous transactions costs abstract in this paper we present an equilibrium model for an exchange economy with fixed prices and endogenously determined search or transactions costs given the fixed prices endogenously determined equilibrium buying and selling prices which include transactions costs result these costs occur on either the demand or supply side of each market but not both we see an eventual application of this approach to an evaluation of welfare costs of either economy wide wage and price controls or sector specific price controls such as energy in the final section we present some simple numerical examples which illustrate the approach

expectations and urban housing prices this paper presents a simple model of price expectations and urban housing prices the empirical results for a sample of houses sold in the city of chicago during 1970 1972 indicate that the expectation of nominal price increase estimated as an extrapolation of past price increases in the neighborhood have a significant impact on the current price

is land leasing a solution to unaffordable housing the increase in u s mortgage rates from nine per cent in 1976 to fifteen per cent in 1982 raised monthly mortgage payments by about sixty per cent even before rising house prices in the united states over this period are taken into account not surprisingly attention has been focused on ways and means of counteracting spiralling housing costs one proposed solution is land leasing under such an arrangement the homebuyer purchases the house but leases the land there may be an option to buy the land at some time in the future land leasing reduces the overall purchase price and hence lowers the minimum down payment and the initial monthly mortgage payment in hawaii land leasing has been a readily available alternative to land owning throughout the postwar period the analysis of residential housing prices in hawaii provides some quantitative estimates of the relative prices of leasehold versus fee simple properties the average price differential is surprisingly small one explanation of these small price differentials for which a model is developed and tested here is that borrowing constrained households use high discount rates to calculate the present value of the future land price that they will in effect have to pay at the expiration of the lease these discount rates are estimated in a nonlinear hedonic property price equation the results are then employed to answer the question under what conditions would a leaseholder buy the land outright before the expiration of the lease

alternative mortgage instruments the tilt problem and consumer welfare mortgage instrument in the united states for the last 50 years and for much of this period it has performed well however during periods of high and volatile rates of inflation the sfpm suffers from severe weaknesses 1 foremost among these problems from the standpoint of the borrower is the tilt in the stream of real mortgage payments toward the initial years of the mortgage for consumers unconstrained by capital market imperfections this tilt is unimportant however a consumer is typically unable to borrow against expected higher future income or against the nominal capital gains that accrue to the owner of a house over the life of the mortgage in addition common practices of mortgage lenders often limit mortgage payments to some fraction of income at the time of purchase together these liquidity constraints create a mismatch between the time se quence of mortgage payments and income a mismatch that reduces the number of borrowers who qualify for financing and that limits the value of the house purchased by those who do obtain financing 2 in an attempt to reduce the problems created by this mismatch a variety of alternative mortgage instruments amis has been suggested three of the most important are the graduated payment mortgage gpm the shared appreciation mortgage sam and the price level adjusted mortgage plam 3 with the gpm mortgage payments rise at some specified rate during a portion of the mortgage life the sam enables the lender to share in the appreciation of the university of colorado boulder and syracuse university respectively this paper was writ ten while the first author was at syracuse university funding for the research was shared by the office of the comptroller of the currency the federal horne loan bank board and the department of housing and urban development mary anne beeman served as research assistant and the manu

when higher incomes reduce welfare queues labor supply and macro equilibrium in socialist economies starting from a micro model of consumer behavior under rationing by queuing that utilizes gary becker s allocation of time framework we develop a simple macroeconomic model of a socialist economy the length of the queue is the key endogenous variable that equilibrates aggregate supply and aggregate demand comparative statics analysis shows that an increase in wages over money prices brings about longer queues that reduce labor supply output and welfare when shortages grow beyond a certain critical level queues fail to sustain aggregate equilibrium in the economy