Demand For Owner-occupied Housing Research Articles

Impact of weak substitution between owning and renting a dwelling on housing market

According to economic theory, an economically rational market agent searching for permanent housing in a particular stage in his/her life cycle should base his/her tenure considerations also by comparing rent to the user costs of homeownership, and among flats with otherwise identical housing services and security will select the cheaper of two alternative tenures. Economic theory perceives rental and owner-occupied housing as ‘communicating vessels’—a change in conditions in one necessarily entails changes in the other. This is called the ‘substitution effect’ and represents an important balancing mechanism in the housing market. Our hypothesis is that if the substitution between rental and owner-occupied housing in particular culture/society is weak, then the demand for owner-occupied housing becomes more income-elastic than vice versa. Consequently, in the case of a weak substitution effect, changes in house prices will closely mimic changes in household incomes, while in the case of a strong substitution effect this relationship will be much weaker. We confirmed our hypothesis by employing both a theoretical model and an empirical analysis of price data. If we assume poor responsiveness of housing supply, the main implication of our findings is that in societies with weak substitution effect between owning and renting we can expect higher house-price volatility and thus a higher chance of price bubbles appearing.

가구소득의 변동성이 주택점유형태 및 자가 주택수요에 미치는 영향 연구 전세가비율과 담보대출규모를 고려할 때

가구소득의 변동성이 주택점유형태 및 자가 주택수요에 미치는 영향 연구 전세가비율과 담보대출규모를 고려할 때

How Mortgage Finance Affects the Urban Landscape

This chapter considers the structure of mortgage finance in the U.S., and its role in shaping patterns of homeownership, the nature of the housing stock, and the organization of residential activity. We start by providing some background on the design features of mortgage contracts that distinguish them from other loans, and that have important implications for issues presented in the rest of the chapter. We then explain how mortgage finance interacts with public policy, particularly tax policy, to influence a household's decision to own or rent, and how shifts in the demand for owner-occupied housing are translated into housing prices and quantities, given the unusual nature of housing supply. We consider the distribution of mortgage credit in terms of access and price, by race, ethnicity, income, and over the lifecycle, with particular attention to the role of recent innovations such as non-prime mortgage securitization and reverse mortgages. The extent of negative equity has been unprecedented in the past decade, and we discuss its impact on strategic default, housing turnover, and housing investment. We describe spatial patterns in foreclosure and summarize the evidence for foreclosure spillovers in urban neighborhoods. Finally, we offer some thoughts on future innovations in mortgage finance.

Interrelations between housing supply agents: the metropolitan housing market in Prague

This article presents the main findings from a detailed analysis of the interrelations between selected agents on the supply side of the housing market in Prague. It discusses the sources of potential market inefficiencies emerging from the nature of interrelations between developers, construction firms and the producers of building materials in the transition economy. The research was conducted in 2007, during a period of growing demand for owner-occupied housing in Prague. The results highlight the barriers which prevent housing supply from reacting effectively to changes in housing demand. The findings may thus be a contribution to the more general discussion of the efficiency of housing markets.

A Different Path to Homeownership: The Case of Taiwanese Immigrants in Los Angeles

Taiwanese immigrants in Los Angeles stand in contrast to the well-documented homeownership deficit among immigrants. Despite the tremendous growth in Taiwanese immigrants during the 1980s, the Taiwanese homeownership rate was not only among the highest of all ethnic groups in 1990, but also recorded a phenomenal increase of 16 percentage points between 1980 and 1990. This paper examines this trend and assesses the contributing factors. It reveals that (1) education and wealth were contributors to Taiwanese high homeownership; (2) Chinese immigrants in general and Taiwanese immigrants in particular had endowment-adjusted homeownership rates well above that of non-Hispanic whites, while the ways in which ethnic Chinese immigrants achieve high homeownership were reflective of their distinctive paths of immigration; (3) surprisingly, higher English proficiency, an indicator of acculturation, was negatively associated with Taiwanese homeownership; (4) the large rise in Taiwanese homeownership in the 1980s was largely contributed to by young, highly educated, newly arrived Taiwanese with a low level of income and a high level of wealth. Findings refute the hypothesis that immigrants are always plagued by homeownership deficits. Well-off immigrants, such as the Taiwanese, may have followed a path of assimilation not yet documented in the literature; acculturation and social adaptation may no longer be preconditions for their economic integration. The arrival of well-off immigrants has a significant potential to bolster regional demand for owner-occupied housing.

The Demand for Owner-Occupied Housing: Implications from Intertemporal Analysis

A household's consumption of housing depends on current and expected future values of influential variables. However, the cost variable used in most studies of housing demand is static. In contrast, we formulate a cost measure that incorporates both expected future changes in its components and the transaction costs associated with home ownership. Measuring annualized transaction costs requires us to estimate a household's expected length of stay at the time of purchase. We use a parametric hazard rate model for this estimation. By projecting future values of the other components of user cost, we complete the measurement of a multiperiod version. Results from estimating housing demands show that our multiperiod transaction-adjusted user cost performs better than the static form and that inclusion of transaction costs is the most important adjustment.

Price Stability Versus Low Inflation in Germany: An Analysis of Costs and Benefits

We empirically investigate the costs and benefits of going from low inflation to price stability in the case of Germany. Recent empirical evidence on the sacrifice ratio suggests that the break-even point at which the permanent benefits of reducing the trend rate of inflation by 2 percentage points exceeds the temporary costs in terms of output losses is below 0.3% of GDP. We analyze the welfare implications of the interactions even of moderate rates of inflation with the distorting effects of the German tax system. Four areas of economic activity are considered: intertemporal allocation of consumption, demand for owner-occupied housing, money demand, and government debt service. We estimate the direct welfare effects of reducing the rate of inflation as well as the indirect tax revenue effects. We find that reducing the inflation rate by 2 percentage points permanently increases welfare by 1.4% of GDP. Finally, the optimal rate of disinflation is considered.

Capital Gains Taxation and the Demand for Owner-Occupied Housing

Previous studies of owner-occupied housing typically ignore the taxation of capital gains because homeowners do not pay a capital gains tax if they buy up when they move. However, the capital gains tax code introduces a kink into the budget constraint of most previous homeowners, causing previous owners to face a different price of housing depending on whether they buy up or down. We control for the kinked budget constraint within a maximum likelihood model of owner-occupied housing demand. Results indicate that failure to model the capital gains tax provisions leads to inefficient estimates of the elasticities of demand. However, controlling for the kink did not lead to statistically different coefficient estimates relative to a linear budget constraint model.

Inflation, Risk, Taxes, and the Demand for Owner-Occupied Housing

A bstract-A portfolio choice model is formulated which focuses on the possibility of inflation hedging motives in housing demand in the 1970s. An asset demand equation is used to estimate the capitalization of inflation expectations into house prices through tax, mortgage, and hedging effects. The empirical results indicate that, even after accounting for tax and mortgage effects, the hedging motive was significant in bidding up house prices. One implication is that the tax effects of inflation may have been overstated in previous research that ignored inflation risk.

Effects of the Swedish 1983-85 Tax Reform on the Demand for Owner-Occupied Housing: A Microsimulation Approach

The effects of the Swedish 1983-85 tax reform are analyzed with respect to the housing market. A microsimulation model is used which takes into account the household's tenure choice (owning vs. renting) as well as the quantity demanded conditional on the tenure choice. The reform consists of a reduction in marginal tax rates and limitations on the deductibility of mortgage interest. The simulations show that this will cause a general reduction in demand for owner-occupied houses. On a disaggregated level, there will be an increase in the demand for small and medium-sized houses, while the demand for large units will fall sharply.

Inflation and extraordinary returns on owner-occupied housing: Some implications for capital allocation and productivity growth

This paper examines the effects of inflation on the allocation of resources between residential and nonresidential uses and the productivity of capital in the U.S. We begin by calculating the realized rates of return on homeowner equity and the contributions of fixed-rate mortgages and differences in relative inflation rates to extraordinary earned real returns. The paper then focuses on the implications of the extraordinary real returns on residential capital for stock prices and on the demand for owner-occupied housing. Proposals for achieving efficient allocation of capital between residential and nonresidential uses are also considered.