alas my home is my castle on the cost of house ownership as a screening device abstract this paper analyzes a model in which housing tenure choice serves as a means of screening households with different utilization rates if the proportion of low utilization types is small there is a separating equilibrium at which tenure choice acts as a screening device consistent with empirical evidence low utilization households buy a house while high utilization types rent otherwise there is a pooling equilibrium the reason why contrary to standard screening models a pooling equilibrium possibly exists is indivisibility of home ownership which makes it a very costly screening device introducing partial ownership restores the standard results non existence of a pooling equilibrium and possible non existence of equilibrium

intraurban residential mobility the role of transactions costs market imperfections and household disequilibrium abstract this paper presents a model of household residential search and mobility that focuses on microeconomic elements of household behavior and incorporates housing market features the model is cast explicitly in terms of a rigorous model of housing demand allowing the benefits from moving to be measured as the compensating income variation of the potential change in consumption the empirical results indicate that large changes in economic variables such as income and prices produce only small potential gains from moving and that a major factor in the moving decision is the magnitude of search and moving costs

property rights externalities and resource degradation locating the tragedy abstract resource degradation in the third world is largely driven by the demands of farm households for fuelwood and land for agriculture since resources are often controlled through indigenous systems of property the tragedy of the commons has been used to explain resource degradation as a result private property is suggested as a solution to resource degradation a dynamic model capable of examining household incentives for resource use under private and common property is developed results of the model reject the conventional wisdom that gives rise to the presumed optimality of private individual property in natural resources and the correlated indictment of group management regimes

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

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

the impact of house prices on consumption in the uk a new perspective this paper proposes an alternative approach to the question of how house prices influence household consumption by focusing on their impact on mortgage equity withdrawal and household saving household level data are used to derive a measure of expected and unexpected changes in house prices these are then incorporated into a recursive bivariate probit model of the decision to withdraw housing equity and save the results suggest that households respond to changes in their housing wealth primarily by increasing their mortgage borrowing rather than by decreasing their savings although this is mainly for younger households however while changes in housing wealth do not have a direct impact on household saving they do have an important indirect impact since they increase the likelihood that the household will withdraw equity which in turn has a negative impact on household saving

housing choices and uncertainty the impact of stochastic events abstract in our model a household recognizes that family size is stochastic when making its tenure and housing consumption decisions it also recognizes that initial choices constrain later behavior because they affect the amount of savings simulations of the model show that housing consumption and the duration of stay in a residence are sensitive to whether the realization of the stochastic event is the expected value based on this observation we suggest that empirical housing studies should include both the expected and realized values of stochastic explanatory variables we find few behavioral responses to changes in the variance of an uncertain event even though increased uncertainty is passed through to after tax income and the user cost of owning a notable exception is that if a household knows that a change in an influential variable will occur but it does not know the direction of change it is more likely to rent initially

the role and growth of new car leasing theory and evidence abstractthere has been substantial growth in rates of new car leasing over the last few decades building on recent theoretical research we construct a model of the leasing decision in which leasing mitigates adverse selection and reduces transaction costs but moral hazard limits its use in our model the prevalence of leasing is related to new car reliability which suggests that the recent growth in leasing is at least partly due to improvements in new car reliability we use this model to derive testable implications and then conduct an empirical analysis to investigate whether the operation of the new and used car markets is consistent with the predictions of this theoretical approach our empirical results support the theoretical predictions of our model in particular we provide direct evidence that leasing mitigates adverse selection and that an important factor in the growth in new car leasing rates has indeed been the growth of new car reliability

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 impact of supply constraints on house prices in england we test the theoretical prediction that house prices respond more strongly to changes in local earnings in places with tight supply constraints using a unique panel dataset of 353 local planning authorities in england between 1974 and 2008 exploiting exogenous variation from a policy reform vote shares and historical density to identify the endogenous constraints measures we find that regulatory constraints have a substantive positive impact on the house price earnings elasticity the effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas and uneven topography has a quantitatively less meaningful impact

neighborhood externality risk and the homeownership status of properties in contrast to corporate and institutional investors single owner occupiers cannot adequately diversify housing investment risk consequently homeownership should be relatively less likely in places with higher housing investment risk using the american housing survey it is documented that neighborhood externality risk a major component of housing investment risk substantially reduces the probability that a housing unit is owner occupied even when controlling for housing type and numerous location and household specific characteristics the effects are quantitatively meaningful and change in change estimates suggest that the effects are causal

menu costs and the long run output inflation trade off abstract in standard new keynesian models there exists an unlimited long run trade off between output and inflation but when we allow for an endogenous frequency of price adjustment this is replaced by an inverted u shaped relationship

an optimal path to extinction poverty and resource degradation in the open agrarian economy this paper constructs a model of the open agrarian economy in order to explore the tendency of many such economies to evolve along paths characterised by severe environmental degradation it pays special attention to the importance of commodity prices and the transfer system in determining agricultural activity levels in ecologically delicate systems

tenure choice and the demand for housing this paper deals with the estimation by means of nonlinear methods of preference parameters from observation of behaviour in housing markets it differs from previous work on housing market behaviour in several important aspects first it treats the choice of tenure mode that is whether to rent or own and the housing consumption decision as a joint decision second it explicitly uses the same behavioural model in analysing these discrete and continuous elements of housing market behaviour third it allows for an analysis of the role of capital market imperfections and discriminatory practices in constraining housing market decisions

the futures price of a commodity in fixed supply abstract this letter shows that in a general equilibrium model of homogeneous population with production risk the futures price of a commodity which is in fixed supply is always below the expected futures spot price e g normal backwardation it also shows that the difference between the futures price and the expected spot price increases as the representative individual s risk aversion rises an important application of this model is to the housing market since houses are in fixed supply in the short run and buying a house is like holding a long position in a forward contract therefore if population is homogeneous houses are not a good consumption hedge and the prices of houses are below their expected rental prices

the normative and positive aspects of the taxation of imputed rent on owner occupied housing received july 1983 revised version received march 1984 1 introduction this paper is concerned with two basic issues associated with the special income tax treatment of owner occupied housing the first is the effect of this policy on resource allocation and in particular on the rate of productive capital accumulation i e capital accumulation which contributes to the increase of the marginal and average product of labor the rate of total capital accumulation productive and residential capital and consequently on the interest rate and the wage rate the second is whether this policy can or cannot be consistent with some notions of optimality the income tax treatment of owner occupied housing is considered in the existing literature to be discriminatory in favoring this type of capital accumulation versus rental housing and productive capital such a discrimin ation is believed to attract resources from the rental housing and productive capital to owner occupied housing and thus to distort resource allocation however the literature is mainly concerned with the impact of the preferen tial treatment of owner occupied housing on income distribution the total loss of welfare and the owner occupied versus the rental market shares see for example laidler 1969 shelton 1970 aaron 1970 white and white 1977 weiss 1978 rosen 1979 and henderson and ioannides 1983 the long run impact of this policy on the allocation of resources between housing and productive capital and on the total supply of capital are only casually analyzed for example although aaron 1970 recognizes the possibility that the tax benefits to homeowners may affect the total supply of savings in his main analysis he assumes that this supply is unaffected by this financial assistance from the foerder institute for economic research is gratafully acknowledged

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

life cycle theory inflation and the demand for housing there has been considerable interest lately in the influence of economywide inflation on the demand for housing under suitable equilibrium conditions such inflation creates three effects each of which may influence housing decisions first inflation raises initial mortgage payments through higher interest rates second it causes such payments to fall rapidly over time in real terms and third it creates a real growth in housing equity as borrowed debt is leveraged against the inflating value of homes two empirical studies one by kearl 6 and more recently by follain 3 have concluded that the sum of these impacts is adverse that is housing demand is reduced by greater economy wide inflation each suggests that credit constraints may explain this result in an attempt to understand better the microeconomic foundations of this empirical result schwab 9 and dougherty and van order 2 have developed fisher type models of intertemporal utility maximization which include a housing consumption choice schwab concludes that with a perfect capital market inflation should induce no distortion in consumer decisions about housing consumption dougherty and van order building on some unpublished work by poterba 8 argue that with interest deductibility from income taxes inflation reduces the after tax cost of housing capital and thereby increases housing demand these conclusions suggest that capital market imperfection must exist to explain the empirical results but just what kind schwab s paper addresses this question by introducing a borrowing constraint into a two period model 9 the constraint is absolute although schwab acknowledges that allowing collateralized borrowing is more realistic schwab s conclusions are two first he argues that if the constraint is nonbinding then the perfect capital market results prevail and second he demonstrates that if the constraints are binding the effect of inflation on

estimating the consumption and investment demands for housing and their effect on housing tenure status theoretical work suggests that families live in owner occupied housing if their investment demand for housing exceeds their consumption demand for housing using household data from the 1983 survey of consumer finances the authors test this theory by estimating an ordered probit model of whether families rent without owning property rent while owning property other than their home own their home without owning other properties or own their home in addition to other properties for owner occupiers who own additional property both the investment and consumption demands are directly observed enabling the authors to separately identify these functions copyright 1994 by mit press

precaution and liquidity in the demand for housing we exploit cross sectional mortgage data to investigate the importance of liquidity constraints and a precautionary motive in the demand for housing households that are not liquidity constrained consume housing services essentially as the life cycle hypothesis suggests but with a significant precautionary component households that are liquidity constrained in terms of not meeting standard loan to value or payments to income constraints are similar to unconstrained households in most respects including the precautionary motive but they respond somewhat less to fluctuations in their lifetime income suggesting some influence of bank induced liquidity constraints we additionally find however that banks enforce liquidity constraints only weakly jel d91 d12 r21 i introduction the benchmark theory in the economics of consumption is the life cycle or permanent income hypothesis lcpi based on the work of modigliani and brumberg 1954 and friedman 1957 its empirical validity is sometimes questionable especially when compared against alternatives that incorporate liquidity constraints or the precautionary motive for saving see for instance deaton 1992 for a survey rejection of the lcpi may however be just a manifestation of the poor quality of consumption data at the micro level these data are typically subject to the reporting biases and omissions inherent in consumer surveys there are further difficulties in measuring a desired stream of consumption services nondurable consumption goods are a small fraction of total consumption and in the case of food essentials hardly a consumer choice variable durable consumption goods have the feature that they are lumpy and that the consumption services at any point in time are hard to measure we propose to test the lcpi at the micro level with a quite different type of data the data are obtained from the residential mortgage finance database collected by the national association of realtors they are based on actual home purchases and the associated mortgage transactions reported by realtors and thus avoid some of the reporting biases of the consumer surveys more important they allow us to accurately identify households that in principle have instantaneous access to additional liquidity by lowering the down payment for the house purchase or increasing the size of the loan further the purchase of a house provides an accurate measure of a relatively large fraction of consumption services obtained for a medium to long horizon and measured at the time of the consumption decision although our data also have some serious shortcomings they allow a look at the lcpi from an unconventional vantage point perhaps the most influential study employing the standard consumer survey in testing the lcpi at the micro level is that of hall and mishkin 1982 it examines food expenditure from the panel study of income dynamics one of their key results is that consumption tracks income more closely than would be expected under the lcpi they demonstrate that this result could be explained by assuming a group of liquidity constrained consumers consuming their income at each point in time of 20 of the total sample some of the drawbacks of this study are the use of food expenditures to represent consumption the underreporting of income and absence of proper wealth data inherent in the consumer survey and the associated inability to individually separate liquidity constrained consumers from the rest of the sample several previous studies have attempted to improve on this way of testing the lcpi by examining other data sets bernanke 1984 used data on durable consumption goods automobiles to overcome the drawbacks of using food consumption in the hall and mishkin study his results support the lcpi but are still suspect because of possible reporting biases and the lack of good wealth and savings observations

portfolio choices for homeowners abstract in this paper i show that introducing frictions associated with housing into standard life cycle models can partially resolve the portfolio choice puzzle i calibrate a model in which a representative household endogenously transits from renting to mortgage financed homeownership the household can later adjust housing status either voluntarily or because of a forced move by paying transaction costs it is shown that homeownership crowds out stock market participation risky owner occupied housing substitutes for stocks while bonds provide liquidity young and middle aged households regardless of whether they are currently homeowners hold much less stock than predicted by traditional models without housing

renovation and mobility an application of the theory of rationing as pollak 10 argues there is a broad class of economic problems where consumers cannot choose the quantities of all goods freely i e some goods are rationed or preallocated in pollak s terms straight quantity rationing is an obvious example in some of these problems consumers can choose whether or not to accept a ration clearly in the absence of other considerations a consumer would never choose to allow his consumption of some goods to be restricted sometimes however he may have an incentive to do so public schools provide a fixed quantity of education for free tenants in public housing must accept the quantity of housing that is offered to them but their rent is subsidized many workers allow their employers to determine hours of work in return for higher wages this paper examines a somewhat different example of the behavior of a consumer who is free to accept or reject a ration it considers a homeowner who finds that he has too little housing perhaps because his income has risen his tastes have changed or his family has grown the consumer must choose between moving to a different home or renovating his present home interest rates have risen and if he decides to move he must surrender his fixed rate mortgage at a favorable interest rate but renovating rather than moving also involves a cost housing services are produced by combining many different types of inputs some of which can be increased through renovation and some of which cannot a consumer can add another room without moving for example but he cannot expand his backyard or make his neighborhood more convenient the consumer must therefore balance the benefits of keeping a low interest rate loan against the welfare cost of the ration on those kinds of inputs which cannot be increased without moving 2 this topic has become increasingly important as current mortgage rates have risen

homeownership community interactions and segregation the authors consider a multi community city where community quality is linked to residents civic efforts such as being proactive in preventing crime and ensuring the quality of publicly provided goods homeownership increases incentives for such efforts but credit market imperfections force the poor to rent within community externalities can lead to segregated cities with the rich living with the rich in healthy homeowner communities and the poor living with the poor in dysfunctional renter communities the pattern of tenure segregation across communities in the united states accords well with the study s prediction the authors analyze alternative tax subsidy policies to alleviate inefficiencies in the housing market and identify the winners and losers under such policies

the most beautiful variations on fair wages and the phillips curve this paper explores the connection between inflation and unemployment in two different models with fair wages in both the short and the long runs under customary assumptions regarding the sign of the parameters of the effort function more inflation lowers the unemployment rate albeit to a declining extent this is because firms respond to inflation which spurs effort by decreasing the reference wage by increasing employment thus maintaining the effort level constant as implied by the solow condition a stronger short run effect of inflation on unemployment is produced under varying as opposed to fixed capital given that in the former case the boom produced by a monetary expansion is reinforced by an increase in investment therefore i provide a new theoretical foundation for recent empirical contributions that find negative long and short run effects of inflation on unemployment

the effect of used markets with endogenous replacement of durable goods the purpose of this paper is to examine the effect of used asset markets for a particular class of durable goods markets where replacement and trading ages are endogenous and where the imperfect substitutability between new and used goods results from the heterogeneity of buyers durable goods are assumed to be like automobiles the quality of the service declines with the age of the durable but the time at which the durable is traded and replaced with a new one is a choice variable for the owner as in my earlier work on heterogeneous buyers 3 it is assumed that the decline in service value with age is lower for some buyers so that these buyers will specialize in used assets in the presence of used markets however this paper departs from previous work by allowing the retirement age and the age at which goods are traded in the used market to be endogenously determined this extension has important implications because it will be shown that retirement age durability will be affected by the presence of used asset markets this paper examines the question of whether a competitive industry will favor a ban on used markets previous authors 2 6 8 have examined this question in markets where durable goods are like textbooks the used asset markets exist because the length of the demand for services by the purchaser is less than the lifetime of the durable in these models the presence of a used asset market is equivalent to a lengthening of the lifetime of the good however in the model of this paper the opening of a used asset market results in uniformity of the lifetime of the durable good since all of the oldest durables will be held by the user type that places the highest value on old durables this uniform retirement age with the used market will be shown to lie between the retirement ages adopted by the two user types when there are no used markets thus the average age of the stock of durables could rise or fall with the introduction of used markets second the model of this paper allows for the analysis of restrictions on used markets that raise the cost of used market transactions but do not eliminate trading it will be shown that the effects of a per unit tax on used market transactions will differ from that of an ad valorem tax because of the greater incentive created by an ad valorem tax to postpone used market transactions this result is in the spirit of barzel s 1 result that the form of the tax is important because different types of taxes may affect characteristics of the good in different ways in the present context goods

measuring the external benefits of homeownership abstract the subsidization of homeownership is justified on efficiency grounds only to the extent that it provides benefits to people other than the homeowner we use the clustered neighborhoods subsample in the american housing survey to measure that benefit in the form of higher housing prices in neighborhoods with higher ownership rates and lower vacancies we attempt to account for unobservable neighborhood and house attributes that may be correlated with occupancy and ownership through instrumental variables switching regressions and panel methods estimates indicate that a housing transition from renting to owning creates approximately 1300 in measured benefits

a model of housing in the presence of adjustment costs a structural interpretation of habit persistence building on the model of sanford j grossman and guy laroque 1990 this paper provides a model of household consumption and portfolio allocation which incorporates the role of housing as both a consumption good and as a component of wealth the model captures the following features of the household s problem a utility depends probably nonseparably on two distinct goods nondurable consumption and housing b nondurable consumption can be adjusted cost lessly but housing is subject to an adjustment cost c households face housing price risk in the sense that the relative price of housing varies over time and d in addition to the house the household can invest in a wide variety of financial assets this single reasonably tractable model generates testable implications for portfolio allocation risk aversion asset pricing and the dynamics of nondurable consumption because the original grossman and laroque model considers a utility function in which the durable good is the sole argument and thus abstracts completely from nondurable consump tion their analysis cannot address either the potential spillover effects of the adjustment costs of the durable good on the dynamics of nondurable consumption or the implications for portfolio allocation of housing risk arising from variation in the relative price of housing in addition to generating implications for issues on which the original grossman and laroque model was silent the housing model delivers a strikingly different message concerning asset pricing that is in contrast to the grossman and laroque result that the consumption based capital asset pricing model consumption capm fails the housing model implies that the consumptioncapm holds we assume that the household incurs an adjustment cost when altering the holding of the dura ble good or house although financial assets can be bought and sold costlessly consumption of the nondurable good can also be adjusted costlessly when choosing a new house the consumer takes into account the fact that the consumption of housing services will be constant at the new level until the subsequent stopping time when it is again worthwhile to incur the adjustment cost thus the home purchase decision is endogenous and fully rational but because of the adjustment cost infrequent in this continuous time setting the household s decision process has a recursive structure at each instant the household first decides whether it is optimal to sell the house immediately on those rare occasions that it is optimal to incur the adjustment cost the household sells the old house and buys a new one instantaneously if the household decides that it is not optimal to sell the house immediately it then determines its optimal holdings of financial assets and optimal level of nondurable consumption conditional on the current housing stock in essence because of the adjustment costs associated with the durable good the current

housing and location choices of retiring households evidence from france in this paper a study is made of the mobility and housing choices of the elderly when retiring using household data collected in france from a theoretical viewpoint individuals are likely to decrease their housing quantity because of an income loss when retiring but they may also increase it to benefit from more housing comfort for leisure using the 1992 trois generations survey it is first shown that housing mobility at retirement is substantial in france with a variety of self reported motives then using the 1994 2001 french europanel survey evidence is found of both upsizing and downsizing for mobile recent retirees in many cases housing adjustments lead to a correction of the initial disequilibrium between the number of rooms and the number of occupants however a significant proportion of mobile recent retirees improve the quality of their dwelling

leasing lemons and moral hazard abstract a number of recent papers have analyzed leasing in the new car market as a response to the adverse selection problem in the used car market originally explored in the seminal 1970 paper by george akerlof in this paper we consider a model characterized by both adverse selection as in these earlier papers and moral hazard concerning the maintenance choices of new car drivers we show that this approach provides explanations for a number of empirical findings concerning real world new and used car markets including that leasing has become more popular over time very high income new car drivers lease more and used cars that were leased when new sell for more than used cars that were purchased when new we also compare and contrast our approach to new car leasing with alternative approaches

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

tenure neutral and equitable housing taxation equity and neutrality are distinct concepts in housing taxation and weak and strong tenure neutrality should be distinguished when a tax system is tested for those criteria the taxes paid by landlords must be included as they affect the rents renters pay this paper defines appropriate tests applies them to a stylised tax system and proposes tax changes designed to restore tenure equity and or neutrality it shows how the homeowner s implicit income should be computed for taxes to be fundamentally tenure neutral or equitable or both it also shows the key role played by the cost differential in producing housing services under owner occupation and renting

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

testing the nairu model for the united states this paper tests using u s data the dynamics implied by the nairu view of the relationship between inflation and the unemployment rate the results are somewhat sensitive to the measure of inflation used but they generally reject the dynamics an alternative way of thinking about the relationship between inflation and the unemployment rate is suggested

homeownership in the 1980s and 1990s aggregate trends and racial gaps abstract housing policy under the clinton and bush administrations has sought to boost homeownership while also narrowing racial gaps in owner occupancy rates against that backdrop homeownership rose sharply in the 1990s but white minority gaps remain in excess of 25 percentage points we analyze these patterns using data from the 1983 to 2001 survey of consumer finances results indicate that household characteristics explain most of the increase in homeownership and roughly two thirds of the white minority homeownership gap credit barriers account for no more than 5 percentage points of the remaining gap this suggests that policy makers will need to look beyond innovations in mortgage finance if their goal is to further expand homeownership

two extensive margins of credit and loan to value policies author s gete pedro reher michael abstract we analyze a model of mortgage markets housing tenure choice heterogeneous agents and default with closed form solutions we uncover new insights which may inspire empirical work and we ground already established insights in a series of tractable expressions then we study optimal loan to value ltv regulation and show that the choice of an ltv cap should balance the opposing forces of access to homeownership and the negative externalities associated with default homeownership affordability concerns induce procyclical elements into optimal regulation which attenuate the countercyclical regulation justified by the negative default externalities

labor income uncertainty skewness and homeownership a panel data study for germany and spain abstract in this paper we empirically investigate the effect of labor income uncertainty on the probability of homeownership in germany and spain this study is motivated by two facts firstly theoretical models tend to provide ambiguous results on this issue secondly previous empirical evidence focuses exclusively on the us housing market to carry out our analysis we propose more precise income uncertainty measures based on panel data labor income equations we observe that households facing high levels of income uncertainty display a preference for renting while those located in more positively skewed income distributions show a greater propensity for homeownership

housing tenure choice in transitional urban china a multilevel analysis summary using a 1996 national survey of housing in china and a multilevel modelling technique we examine housing tenure choice in transitional urban china where households have been granted limited freedom of choice in the housing market since the housing reforms of 1988 we e nd that both market mechanisms and institutional forces affect households tenure choice in urban china while some socioeconomic factors such as age household size household income and housing price have similar effects on tenure choice as in the west others such as the number of workers and marital status have rather different effects in addition factors characterising institutional relationships among the state work units and households such as hukou job rank and work unit rank still play important roles in tenure choice

natural resources prices export policies and deforestation the case of sudan abstract environmental destruction is often the result of price policies for primary commodities that determine how individuals will use and abuse natural resources in this paper we analyze how domestic policies under colonial and independent governments in sudan contributed to acacia senegal deforestation and the demise of the international gum arabic trade when primary commodities are produced from environmentally beneficial species such as acacia senegal trees the impact of a declining market for the primary commodity will have economic and ecological repercussions on other sectors in the economy poverty and risk are central to this process

the social and private micro level consequences of homeownership abstract this paper reviews the literature that describes the micro level economic and social consequences of homeownership we adopt an interdisciplinary approach and include studies from economics sociology geography political science psychology and other disciplines our focus is on the set of consequences of homeownership in developed countries our list of potential outcomes of homeownership includes the impact on household wealth and portfolio choice mobility labor force participation urban structure and segregation home maintenance political and social activities health demographics self esteem and child outcomes there is substantial evidence that homeownership has important effects on some household behaviors and outcomes however we find that much of the past 30 year s literature on consequences of homeowning is deficient from a theoretical or econometric perspective we suggest solutions and identify research gaps present in the literature

the transition to home ownership and the black white wealth gap this paper analyzes differences in the likelihood that black and white families become homeowners by following a sample of black and white renters over time we are able to separately study racial differences in the likelihood of applying for a mortgage and in the likelihood that a mortgage application is accepted although its effect on the race gap in housing transitions is small we find strong evidence that black applicants are almost twice as likely as comparable white households to be rejected even when credit history proxies and measures of household wealth are accounted for we show that the housing transition gap exists primarily because blacks are less likely to apply for mortgages in the first place the analysis suggests that differences in income family structure and in the ability and willingness of parents to provide down payment assistance are the primary reasons for this applications gap we speculate that the portion of the gap that remains unexplained after controlling for income d

the impact of rental properties on the value of single family residences abstract this study examines the effects that single family rental properties in a residential neighborhood have on the value of single family residences in that area the analysis blends real estate valuation concepts with evidence found in the housing maintenance literature and urban succession theory to develop testable hypotheses regarding the property specific proximity related and neighborhood wide impacts of rental properties on property values the data used to test the hypotheses include the tenure status of 23 119 single family residences and 1 162 single family sales regression results support all three hypotheses although numerous studies on the value impacts of other externalities have been published this is the first study to examine the separation of property rights the results of this study provide additional insights into housing maintenance and also have implications for neighborhood zoning regulations

the impact of mortgage interest rate subsidies on household borrowing abstract the responsiveness of household borrowing to changes in the interest rate is a crucial parameter for assessing public policies aimed at promoting saving we estimate the effect on household borrowing of a reform of a program that subsidized interest rates on mortgages signed by medium and low income households the reform established a ceiling in the price of the house that could be financed with the program first we use triple difference estimators exploiting the fact that the reform should affect most the borrowing behavior of eligible individuals living in high price areas and estimate that the elasticity of the probability getting a loan to the interest rate lies between 2 8 and 1 3 second we document that after the reform the distribution of loan sizes became more concentrated at the discontinuity point of the budget constraint of eligible individuals both findings are consistent with a negative response of household borrowing to increases in interest rates

cross sectional estimation of a simultaneous model of tenure choice and housing services demand abstract in this paper we analyze the demand for housing services integrating into a single analysis a systematic treatment of several important conceptual and empirical issues our three major objectives are to 1 evaluate the empirical importance of the simultaneity between the tenure choice and consumption level decisions 2 analyze the relationship between household type and housing demand and 3 present new estimates of the parameters of housing demand which are based on detailed microdata in the process we derive and estimate overall income and price demand elasticities which incorporate the impacts of income and price on both the tenure choice and consumption level decisions

increasing returns to scale and the long run phillips curve abstract a growing body of empirical evidence shows that there exists a long run positive trade off between inflation and real macroeconomic activity within a new keynesian framework we examine how increasing returns generate a positive long run relation between inflation and output

hedging house price risk in the presence of lumpy transaction costs abstract this paper presents a life cycle model of housing demand with uncertain house prices and lumpy transaction costs the paper extends the s s methodology to a non stationary discrete time framework with multivariate stochastic price processes this allows the characterization of a self hedging mechanism in an incomplete housing market households use earlier accumulated housing wealth to hedge against future housing cost risk as a result the direction of the effect of price uncertainty on housing demand depends critically on households future housing consumption plans when price uncertainty increases households consume and thereby invest in less housing if they plan to realize the housing wealth gain however they will instead take a larger housing position if they plan to move to a bigger home in a correlated housing market in the future

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

optimising agents staggered wages and persistence in the real effects of money shocks in this paper we incorporate taylor s 1979 staggered wage setting into an optimising dynamic general equilibrium framework to study whether staggered wages could induce a high degree of persistence in the real effects of money shocks we conclude that high persistence is an unlikely outcome sensible values of the microeconomic parameters and or a moderate rate of underlying inflation imply a low degree of persistence furthermore once explicit microfoundations are taken into account we show that i the model is highly non linear ii the inertia of the system is inversely related to the level of average inflation

the macroeconomics of trend inflation most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state but most central banks target an inflation rate of about 2 percent many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy in this survey we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers we first review empirical research on the evolution and dynamics of u s trend inflation and some proposed new measures to assess the volatility and persistence of trend based inflation gaps we then construct a generalized new keynesian model that accounts for a positive trend inflation in this model an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations this analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long run inflation target jel e12 e31 e32 e52 e58

the effects of price risk on housing demand empirical evidence from u s markets this article examines how price risk affects housing demand it identifies two relevant channels a financial risk effect that reduces demand and a hedging effect that increases demand since current homes may hedge future housing costs the latter dominates when hedging incentives are strong namely when the likelihood of moving up the housing ladder is high and the tendency to move across markets is low for households with weak hedging incentives the article finds negative effects of price risk on the timing and size of home purchases but positive effects for households with strong hedging incentives

the demand for housing in spain an endogenous switching regression analysis housing demand in spain has been studied by using data disaggregated into primary and secondary housing demands it is found that demand for both types of housing area indeed related and that they are both considered necessities thus suggesting that their consumption ought to be modelled as a joint decision moreover it is found that traditional determinants of housing demand affect primary and secondary home demands differently these differences are attributable to the following economic rationales need for asset holdings diversifications relative high cost of home ownership versus rental in choice locations and differences in land demand intensity across regions in sum the findings suggest that policy makers in spain contrary to popular beliefs must consider secondary homes an integral part of households accommodation need

explaining the spatial variation in homeownership rates results for german regions lerbs o w and oberst c a explaining the spatial variation in homeownership rates results for german regions regional studies this paper employs cross sectional data on ninety six german regions to investigate the interregional variability of homeownership rates among the explanatory variables the analysis includes important regional housing market indicators as well as regional socio demographic composition urbanization and labour market performance an estimation strategy is chosen which accounts for different forms of spatial dependence between the regional units it is found that regional differences in the relative price of owning versus renting and the affordability of owner occupied housing play a key role in explaining why homeownership rates vary so substantially across the country the results indicate significant neighbourhood effects for several variables

the relation between financial and housing wealth evidence from dutch households abstract we analyze households joint investment decisions for financial wealth and homes we use a bivariate censored regression model with endogenous switching fixed costs or transaction costs are captured by an unobserved nonzero censoring threshold the model allows for spillover effects of a binding threshold for one asset on the demand for the other asset we find that tenure choice affects the level of financial wealth our results do not support the view that people first accumulate financial wealth before acquiring homes this can be due to the absence of down payment constraints in the netherlands

the stork the plow rural social structure and tropical deforestation in poor countries abstract several authoritative sources attribute deforestation in poor countries to the actions of the rural poor others argue that this is tantamount to blaming the victim and directing attention away from the fundamental causes inequality in landholding tenure insecurity and landlessness of deforestation unfortunately there are no statistical tests of the impact of these rural political economy variables on deforestation this paper uses a model of deforestation based on rural household labor allocation decisions to empirically assess how those decisions interact with the structure of rural political economy to determine the extent of deforestation in poor countries cross country multiple regression equations suggest that policies to intensify smallholder agriculture can slow population movement to the agricultural frontier but regression results also show that this outcome depends on the degree of equality in the distribution of landholdings and the extent of rural rootlessness these findings have two important implications for public policy first they suggest that efforts to slow deforestation must start with an understanding of the behavior of the millions of small farmers who now deforest second they suggest that political economy interpretations of deforestation need to taken more seriously by those trying to conserve forested areas