Local House Prices Research Articles

Understanding intracity housing market dynamics: A state-space model with Bayesian nonparametric clustering approach

Understanding the intracity heterogeneities in housing market dynamics across microgeographic areas is important but challenging due to infrequent transactions. Unlike traditional methods that use trend-based clustering to improve the accuracy of local housing price and rent indices, we propose a novel hybrid model that combines the state-space model and the Bayesian nonparametric clustering approach to cluster neighbourhoods according to their temporal price volatility. We show that our methods improve the performance of traditional methods by 10-40%, using over 889,428 housing transactions in Singapore between 2006 and 2018. We also demonstrate a practical application of our method – monitoring neighbourhoods’ distinct market reactions to macroeconomic or policy shocks, which has important implications for urban planning and housing investment.

Data‐sparse price indexes by spatio‐temporal regularization and PCA: An application to the Australian housing market

AbstractWe present two novel approaches to overcome the limitations of data‐sparse local house price indexes and combine them into a single model pipeline that is simple, computationally efficient, and interpretable. The first contribution is a new spatio‐temporal regularization of least squares dummy variable models, such as the repeat sales regression used here. This regularization encodes prior knowledge of the proximity of houses in space and their sales in time. It handles missing values in a natural way. The second is nonlocal regularization using truncated principal component analysis (PCA) applied to the resulting national collection of local price indexes. The PCA loadings show that there are important underlying socioeconomic factors that can be leveraged in the construction of Australian market indexes. This PCA reveals important socioeconomic factors, showing that many local markets can be described by a few broad aspects of the national market, consisting of a general trend that contrasts regions influenced by the mining industry with Sydney and Melbourne, and another trend that highlights lifestyle.

Impact of waterborne E. coli outbreaks on local communities: evidence from housing transactions in Michigan

Abstract Waterborne Escherichia coli (E. coli) represents a pervasive water quality problem across the United States. In Michigan, the presence of E. coli has become problematic for many areas where agricultural run-off and ineffective policies have made these outbreaks endemic. Combining the universe of housing transaction datasets from 2009 to 2017 with the State of Michigan water sampling dataset, we investigate and quantify the negative impacts of E. coli outbreaks on local housing prices. Our difference-in-differences model estimates an overall impact of −8.94% for houses in the treatment group relative to the control group. However, this effect is only short term, as sales prices recover after the outbreak has ended.

House Prices and Misallocation: The Impact of the Collateral Channel on Productivity

Abstract This paper investigates the impact of local house price booms on capital misallocation within industries. Using the geographical variation provided by the Spanish housing boom (2003–7), we show that firms exposed to positive local house price shocks received more bank credit and their investment grew more when they had a higher proportion of real estate assets. This collateral channel results in an increasing dispersion of the capital-labour ratio within industries. A counterfactual calculation suggests that the capital misallocation generated by this channel can account for around 40% of the total factor productivity decline experienced by the Spanish economy during the housing boom.

Productivity Shocks of Dominant Companies and Local Housing Markets

We extend the literature on the influence of firm-level characteristics on housing markets by exploring the association between the labor productivity shocks of dominant firms and local housing prices. Using a sample of all U.S. firms from COMPUSTAT during 1980-2017, we find that the aggregate shocks of labor productivity of dominant firms at the metropolitan statistical area (MSA)-level explain for a significant portion of the local housing price changes in MSAs while controlling for other housing price determinants. About a year or more is required for the shocks to propagate through the local housing markets, which make them a viable predictor of future housing price. The productivity shock – housing price relation is stronger in areas that have more concentrated high-tech dominant firms or where dominant firms have closer links to their local non-dominant industry peers. Shocks are also more influential during economic expansion than economic contraction. Furthermore, the relation also exists at the zipcode level but the shocks propagate faster than at the MSA-level. The findings provide helpful insights for real estate practitioners and policymakers, especially in areas with a higher concentration of large companies.

Unveiling investors' substitution behavior: Stock trading decisions in response to housing market dynamics

Utilizing positive quasi-random shocks to local housing prices in Shanghai, we show that stock investors who experienced significant returns from the real estate market traded less actively, took less risk, and spent less effort trading. We confirm the effect of housing price changes on investors' trading behavior in a national sample. Our findings suggest a substitution effect between the real estate and stock market and highlight the importance of understanding investors' trading behavior in light of intertemporal variations in other asset market.

Multilevel effects of urban form and urban functional zones on housing prices: evidence from open-source big data

While the relationship between local housing prices and the urban form and distribution of urban functional zones in a single city is well-discussed, the conclusion is usually sensitive to a particular city context, and cross-city comparative study is limited. This study attempts to examine the influences of urban form and urban functional zone distribution on housing prices within and between cities after controlling the city-wide socio-economic and demographic differences. Based on multiple open-source big data, such as points-of-interest (POI) and historical housing transaction data, the hierarchical linear model is utilized to compare the housing market of 10 extra-large cities in China. Results indicate that the urban form and the urban functional zone distribution significantly influence housing prices after the socio-economic and demographic differences are controlled. For inter-city comparison, an urban form with high compactness, low centrality, low polycentricity, high density, and low dissimilarity in housing development is related to lower city-level housing prices. For intra-city, proximity to work centers, high-quality hospitals, and schools shows positive associations to housing prices.

Do residential property assessed clean energy (PACE) financing programs affect local house price growth?

The objective of residential Property Assessed Clean Energy (PACE) programs is to increase environmentally friendly home renovations, like solar panel installations, for private residences by making financing more readily available. Local governments use municipal bond proceeds to finance PACE loans that are secured via a property tax lien on the affected residence and repaid through temporarily higher property taxes. Critics allege that these programs can stymy housing markets through lien-related risks that discourage buyers and lenders. Using data from Florida, we find support for these claims. Our analysis suggests that PACE program rollouts predict fewer home sales and weaker house price appreciation. We investigate the channel for these results and observe that mortgage lenders are less likely to approve loan applications in areas after local PACE programs are introduced. This even occurs for homes without PACE liens, which discourages housing market liquidity and drives down housing market returns. Our results emphasize the need for thoughtful policy design and implementation to avoid unintended, negative consequences of well-intentioned sustainability programs.

Local House Price Dynamics: New Indices and Stylized Facts

Local House Price Dynamics: New Indices and Stylized Facts

Time-varying and land use-induced spillover effects of urban redevelopment: Evidence from Hong Kong

This paper investigates the time-varying and land use-induced spillover effects of urban redevelopment, providing a lens through which to understand the welfare implications of both the temporal dynamics and the land use changes that occur through urban transformation. By analysing redevelopment project and housing transaction data from Hong Kong between 2005 and 2020, we find significant, positive spillover effects of urban redevelopment on local housing prices following the redevelopment announcement, with diminishing magnitudes as the redevelopment project proceeds. We also find heterogeneous spillover effects associated with different functional land use changes in redevelopment projects. The direction and extent of these externalities depend on the trade-off between the changes in local amenities and the changes in the level of competitiveness in the local housing market.

Is religion an inferior good? Evidence from fluctuations in housing wealth

An increase in local house prices in the US is associated with a decrease in the time homeowners spend on religious activities compared to renters. Notably, this effect is not observed in volunteering and civic activities. The decline in religious activities is more pronounced for credit-constrained households. The main result is attributed to a wealth effect, whereby activities that have an inferior-good component decline with housing wealth, and to a substitution effect whereby the attractiveness of activities linked to the residential asset increases during housing booms.

Foreign buyer taxes and housing affordability

AbstractTo improve housing affordability jurisdictions in different countries has introduced taxes on nonresident home buyers. We use the foreign buyer tax introduced in British Columbia, Canada, in August 2016 to investigate the extent to which such taxes improve housing affordability through their effect on local house prices. Our work uses direct transaction‐level identification of foreign buyers that resulted from policies prior to the announcement and subsequent introduction of the tax. Using a difference in differences methodology, we compare house price changes pre‐ and posttax between high and low foreign buyer concentration neighborhoods. We find that house prices decline by 6% in neighborhoods with above median concentrations of foreign buyers after the tax relative to prices in neighborhoods with below median concentrations of foreign buyers. The quantitative effects are also striking with overall foreign buyer share falling from 13.2% of single‐family transactions in the 6 weeks prior to the announcement of the tax to 1.7% for the 3 months following the tax. The unique contribution of this article is our use of transaction‐level data to explicitly identify the properties purchased by foreign buyers to create more accurate control and treatment groups than found in other analyses.

The effect of housing price inequality on mental health

This study investigates whether and how changes in local housing price inequality affect individuals’ mental health. We construct a local-level housing price inequality index using data on all housing transactions in South Korea and link it with individual-level medical utilization records. We find that rising local housing price inequality increases the likelihood of medical visits and expenditures related to mental health conditions. Subgroup analysis shows that the estimated effect of housing price inequality is highly heterogeneous, as the estimates vary noticeably by gender, age, and income levels.

Effects of House Flips on Local Housing Transactions

This study explores the possible impacts of short-term house trades, often called “house flips,” on local housing markets. Using nationally representative data across multiple U.S. housing markets during 2000–2013, we test the Spillover Hypothesis and the alternative Competition Hypothesis for the influences of flips on the neighborhood non-flip house transactions. We find that the local flip tendency, our measurement for local flip activity, is negatively associated with the holding durations of neighborhood houses experiencing non-flip resales, and positively associated with their resale prices, after we control for market conditions that affect both flip and non-flip transactions as well as other potential determinants for holding duration and price. The effects are generally more prominent when the local flip tendency is measured for a longer run, supporting the Spillover Hypothesis. These effects are also persistent regardless of whether the local flip tendency is defined as the proportion of flips in the local resales by transaction number or by transaction volume, or whether it is measured continuously or discretely. The results also hold when we endogenize the local flip tendency, or when we change the neighborhood size. These findings demonstrate the substantial influences of flip activities to the local housing market turnover and price movements.

Climate Change and the Geography of the U.S. Economy

This paper examines how the spatial distribution of people and jobs in the United States has been and will be impacted by climate change. Using novel county-level weather data from 1951 to 2020, we estimate the longer-run effects of weather on local population, employment, wages, and house prices using a panel distributed lag model. The historical results point to long-lasting negative effects of extreme temperatures on each of these outcomes. We highlight that a long lag structure is necessary to appropriately capture the longer-run effects of climate change, as short-run effects are often small and imprecisely estimated. Using county-level weather projections based on alternative greenhouse gas emissions scenarios, we use the estimated models to project the spatial distribution of these local economic outcomes out to 2050. The results point to substantial reallocations of people and jobs across the country over the next three decades, with mobility increasing by between 33 and 100 percent depending on the scenario. Population and employment are projected to shift away from the Sunbelt and toward the North and Mountain West. We document that this would, in fact, be a continuation of a historical pattern: Over the past four decades the relationship between population growth and hot climates across the United States has turned from strongly positive to slightly negative. We present a spatial equilibrium model to interpret the results, highlighting the impacts of climate change on amenities and productivity, and find significant roles for both channels in accounting for our empirical findings.

Local House Price Effects of Internal Migration in Queensland: Australia's Interstate Migration Capital

AbstractWe examine the causal impact of internal migration on housing prices across 82 Statistical Areas Level 3 regions in Queensland, Australia from 2014–2019. The primary findings are: (i) an annual increase in the inflow of migrants equal to 1 per cent of a region's initial population leads to a 0.6 to 0.7 per cent annual increase in Queensland's house prices across different empirical specifications; (ii) this effect differs between the Greater Brisbane metropolitan area and Rest of State areas; (iii) migration from New South Wales fails to produce a significant influence on house price growth in Queensland.

Small things, big impact: The network-mediated spillover effect through a transport connectivity enhancement project

This study examines a 4.3 km expansion of Singapore's metro transit system. Despite a short line, it better connected existing lines and improved the connectivity levels of numerous stations across the city, as evidenced by connectivity indices. The improvement allowed residents living near those stations to access other places more easily, leading to greater convenience and higher home value in those stations' neighborhoods. Using difference-in-differences to compare housing price and connectivity changes in all neighborhoods with or without a station, we find that a 1% improvement in connectivity can increase local housing prices by 0.37%. The identification is anchored to the broad impact of the network reconfiguration, which was caused by the new transport infrastructure, on the connectivity changes in distant areas. Several techniques and tests enhance robustness. These include an estimation of the treatment boundary that defines proximity to stations, propensity score matching or weighting to mitigate sample imbalance, event study for the parallel trend, parameter sensitivity tests, etc. The research highlights that a small transport project can generate broad impacts on the whole city.

The differential effects of exchange rate fluctuations on local housing price growth: evidence from Australia

ABSTRACT We investigate whether real exchange rate fluctuations contribute to the fluctuations in housing prices differently across local housing markets through the differential compositions of immigrants. We first develop a new measure of the immigrant-weighted local real exchange rate, which varies across areas and over time within Australia. Using this measure and a fixed-effect instrumental variables approach, we find that the growth in local real exchange rate positively affects housing price growth. This positive relationship is mainly driven by urban metropolitan areas.

전국 주택구매력지수(HAI)의 변화가 지방 주택매매시장에 미치는 영향에 관한 연구

This study analyzed the effect of changes in the national housing purchasing power index on the local housing sales market, which is recognized as a heterogeneous market with the metropolitan area. The analysis method used the Vector Error Correction Model in consideration of the time-series observation characteristics of the main variables of this study. The summary and implications of this study are as follows.
 First, if housing prices in the metropolitan area soar and housing investors' investment capacity in the metropolitan area decreases, it is estimated that they are interested in the local housing market with relatively high price benefits. In particular, the effect of the change in housing purchasing power is expected to occur mainly in the housing market in local hub cities. Second, it can be seen that the local housing market is most affected by income increase through economic growth in the long run. Third, the total population of Jeollabuk-do is expected to gradually flow out due to the concentration of the economy in the metropolitan area, and the trend of aging is expected to increase rapidly. However, Jeonju, a hub city, is expected to show a significant difference in the housing sales market depending on regional characteristics, such as the continuous influx of population. Finally, unlike the results of a study conducted on the housing market in the Seoul metropolitan area, changes in major macroeconomic variables such as interest rates excluding economic growth did not have a significant effect. This result is judged to be because local housing prices have a very low price level compared to the metropolitan area, so the merit as investment goods or inflation hedging is not high.

Loan spreads and credit cycles: The role of lenders’ personal economic experiences

We provide evidence that changes in lender optimism can lead to excessive fluctuations in credit spreads across the credit cycle. Using data on the real estate properties of loan officers originating large corporate loans, we find that credit spreads overreact to sophisticated lenders’ recent local economic experiences, captured by local housing price growth. These effects are only present when borrowers own real estate assets and during times of greater uncertainty about real estate values, i.e., boom-and-bust cycles in housing prices. Our analysis suggests that recent personal experiences shape sophisticated lenders’ beliefs about real estate values, which affect their pricing decisions.