Residential Investment Research Articles

Decarbonising the UK residential sector: The dependence of national abatement on flexible and local views of the future

The UK has some of the worst performing residential buildings in the EU from an energy efficiency perspective. Natural gas remains a dominant feature of existing and new-build housing with strong historical, technical, and social barriers to change. Consequently, the residential sector is responsible for significant shares of national emissions and has a strong role to play under ambitious net zero targets.To assess this role, this work combines long-term system-wide optimisation modelling with heat and electricity network models of representative residential locations. The scenario framework investigates key heating alternatives across futures with dwindling carbon budgets but lower restrictions on residential investment options. Comparing frameworks offers insights into “real life” applicability of technology solutions consistent with system-wide decarbonisation pathways to 2050.Residential sector heat plays an increasing role in lowering emissions as targets tighten. Moving away from natural gas becomes unavoidable and long-term trajectories combine end-use electrification, at household or collective levels, with supply-side decarbonisation. This is preferable to alternative gases that continue to carry uncertain emission impacts, but requires significant local network reinforcement. This could be deferred where technically difficult using near-term hybrid approaches. Enabling this transition will rely on policies that support open and varied technology portfolios.

Inter-Type Investment Connectedness: A New Perspective on China’s Booming Real Estate Market

ABSTRACT This study explores the inter-type real estate investment connectedness in China. We document that: (1) connectedness is strong and time-varying; (2) the residential investment is instrumental in the inter-type investment connectedness network; (3) the total connectedness has dropped since 2008; and (4) the November 2008 Chinese stimulus package has significantly enhanced the influence of the residential and the industrial and other real estate investments. These results reflect both the economic development strategy of Chinese local governments and the importance of central government intervention, therefore providing a new perspective to understand China's booming real estate market during the past two decades.

SYSTEMATIC MONETARY POLICY AND THE MACROECONOMIC EFFECTS OF SHIFTS IN RESIDENTIAL LOAN‐TO‐VALUE RATIOS

AbstractWhat are the macroeconomic consequences of changing aggregate lending standards in residential mortgage markets, as measured by loan‐to‐value (LTV) ratios? Using a structural vector autoregression (VAR), we find that GDP and business investment increase following an expansionary LTV shock. Residential investment, by contrast, falls after a small initial uptick, a result that depends on the systematic reaction of monetary policy. We show that, historically, the Fed tended to respond to expansionary LTV shocks by raising the monetary policy instrument, and, as a result, mortgage rates increased and residential investment declined. House prices are affected in a similar manner.

United States

Real GDP growth held broadly steady at 2.1% (annualised) in Q3, following the slowdown to 2.0% in Q2, but this masked diverging trends across subsectors. Consumer spending grew a still‐strong 3.2%, while business investment contracted 2.3% — the first back‐to‐back fall in capital spending since 2016. Trade and inventories also dragged slightly on growth, while residential investment surprised somewhat on the upside with a 4.6% surge following six quarters of contraction.

The Effects and Origins of House Price Uncertainty Shocks

This paper investigates the effects of house price uncertainty shocks on economic activity, and traces the origins of the shocks. A Markov-switching vector autoregression (MS-VAR) model shows that house price uncertainty shocks in expansionary regimes increase residential investment, housing prices, and mortgage debt, while they have the opposite effects in recessionary regimes. These empirical results are investigated in an estimated New-Keynesian dynamic stochastic general equilibrium (DSGE) model with a housing sector that allows for multiple structural uncertainty shocks. We show that uncertainty shocks to housing preference and the inflation target are the main sources of house price uncertainty shocks. Uncertainty shocks to investment-specific technology and the inflation target can reproduce the empirical impulse responses in recessionary regimes from the MS-VAR. By contrast, the responses to housing preference uncertainty shocks are consistent with the empirical impulse responses in expansionary regimes. House price uncertainty generated by these structural uncertainty shocks affects the housing market via both housing demand and real-options channels.

Forecasting of US Residential Investment in GDP Using Dynamic Factor Models

세계경제에 미치는 파급력을 고려할 때 미국 경기에 영향을 주는 지표를 선제적으로 파악할 필요가 있다. 미국 주택시장은 금융위기 이전에 뚜렷한 경기선행성을 보였으며, 금융 위기를 촉발한 원인임을 고려할 때 주택시장의 방향성을 사전에 인지하면 경기 흐름 예측에 도움이 될 것으로 판단된다. 주택 경기를 종합적으로 평가할 수 있는 지표로는 GDP 구성요소 중 주택투자가 대표적이나 GDP 통계는 분기로 발표되어 발표시차가 길고, 수치의 추가 조정 가능성 등으로 적시성이나 정확성 측면에서 한계가 존재한다. 본 연구는 GDP 주택투자 예측의 적시성과 정확성을 보완하기 위해 동태요인모형을 사용하였다. 1985년 1월~2019년 5월의 기간에 대해 66개의 월별 거시경제지표를 이용하여 다른 모형 과의 예측력을 비교한 결과 동태요인 모형의 우수성을 확인하였다. 또한, 추정된 주성분계 수의 변화추이를 살펴본 결과, 금융위기 이후 주택투자의 경기선행성 약화 원인은 공급측 요인에 기인한 것으로 추론된다.Considering the impact the US economy has on the global economy, recognizing and actively responding to key indicators affecting the US economy is always beneficial. The US housing market led the economic activity before the Global Financial Crisis of 2008. As evidenced by the cause of the GFC, the change in the housing market has a large impact on the real economy. Hence, forecasting the direction the housing market is expected to take will greatly help understand the economic trends. Residential investment in GDP is an index typically used to comprehensively figure out the housing market, but GDP is limited in terms of timeliness and accuracy due to the long time lag following the quarterly announcement and the possibility of adjusting the announced figures. In this study, we set up a dynamic factor model using 66 monthly macroeconomic indicators for January 1985 to May 2019 to supplement the timeliness and accuracy of residential investment forecasts. In order to verify the forecast performance, the results of the dynamic factor model is compared to the time series model and we also look at the in-sample and out-of-sample prediction. The results show that the dynamic factor model performed excellently. Also, changes in the principal component coefficients estimated in the model suggest supply side factors as cause of the weakening of the housing investment as a leading index after the GFC.

Osiedle mieszkaniowe budownictwa jednorodzinnego „Szadkowice–Ogrodzim” w gminie Szadek – geneza powstania i ocena założenia po 50 latach

Wybudowane w latach 1970–2018 osiedle budownictwa jednorodzinnego „Szadkowice–Ogrodzim” ze względu na swoją powierzchnię, liczbę i kubaturę budynków uważane jest za największą inwestycję mieszkaniową w gminie Szadek z okresu powojennego (po 1945 r.). Osiedle reprezentuje odmienny zespół wartości, wynikających z nieokreślonego dla całości programu ideowego, przyjmowanych w różnych okresach powstawania założeń układu przestrzennego. W niektórych fragmentach dążono do spójnej formy architektonicznej zabudowy i charakterystyki technicznej budynków. To znaczące dzieło przestrzenne okresu powojennego w sąsiedztwie małego miasta, jakim jest Szadek, jest cennym przykładem koncepcji urbanistycznej na terenach wiejskich obrzeży miast. Artykuł niniejszy ma na celu dokonanie szeroko rozumianej oceny stanu założenia, po prawie 50 latach od rozpoczęcia budowy.

Skilled migration and business cycle dynamics

Shocks to net migration matter for the business cycle. Using a structural vector autoregression and an estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy, we find that migration shocks make an important contribution to the volatility of per capita GDP. Migration shocks contribute to variability in per capita consumption and investment, and to residential investment and real house prices. Despite the role of migration, other shocks remain more important drivers of these expenditure components and of housing market volatility. In the DSGE model, the level of human capital possessed by migrants relative to that of locals materially affects the business cycle impact of migration. The impact of migration shocks is larger when migrants have substantially different levels of human capital relative to locals. When the average migrant has more human capital than locals, as seems to be common for migrants into developed economies, a migration shock has an expansionary effect on per capita GDP and its components.

Teardowns, popups, and renovations: How does housing supply change?

AbstractCities grow in layers over time. As population and land values increase, older, smaller buildings are replaced with higher density, higher value structures. However, direct costs of redevelopment and institutional barriers such as zoning may constrain replacement of older structures, leading to alternate forms of supply adjustment. In this paper, I use data on building permits in Washington DC to examine three different forms of residential investment: new construction, expansion of existing structures, and renovation. Results suggest that new construction accounts for a relatively small part of residential investment and is highly concentrated in a few neighborhoods. Expansions and alterations of existing structures are more frequent and more evenly dispersed across space. Recent increases in housing values are correlated with more new construction, but only among neighborhoods with relatively more permissive zoning. Additions and alterations are more prevalent in neighborhoods with high property values, older housing, and more restrictive zoning.

News and noise bubbles in the housing market

Employing a non-standard VAR technique, I decompose house price movements into news and noise shocks and I analyze their macroeconomic effects in the US between 1963 and 2016. News shocks are identified as disturbances that induce a lagged permanent effect on rents, the key fundamental in the housing market, while noise shocks are assumed to move house prices without affecting rents. News shocks are the main driver of the US housing market in the long-run. However, noise shocks explain a large share of house prices volatility and they have a non-negligible effect on residential investment and GDP over short and medium horizons. Noise shocks contributed to all housing cycles since the '60s, including the boom-bust episode of 2001-2009.

Achieving renewable energy, climate, and air quality policy goals: Rural residential investment in solar panel

Heavy dependence on fossil fuels among rural households contributes to GHG emissions and air pollution while increasing landfill loads in Poland. This study examines benefits from the renewable energy utilization support program that subsidized household purchase and installation of thermal solar panels. This review of synergy between energy, climate, and air quality policies focuses on solar panel subsidies funded through the European Union and county governments in Mazowieckie Voivodship in Poland. County government offices, using the unpublished list of households receiving subsidies for thermal solar panel installation, mediated in the implementation of the survey and collected 123 completed questionnaires in May and June 2015. The heteroscedasticity-corrected OLS estimates two equations identifying and quantifying factors influencing the purchase price of solar panels and rural household monthly energy bill savings after installation using the gathered data. Among sociodemographic variables, increasing age was associated with an increasing price paid for the panels, but education was associated with paying a lower price for solar panels and lower self-reported energy bill savings. Panel purchase price increased if the respondent was a farmer, viewed subsidies as important, and preferred domestically manufactured panels. Location of household increased the price as compared to the reference county. Savings on monthly energy bills increased if respondent had a positive view of solar energy, expected a decrease in the bill following the purchase of panels, and heated large areas in the house. Subsidy programs have been important in increased household solar energy utilization, especially among farm households, while self-reported energy bill savings increased with positive attitudes towards renewable energy and the larger heated areas in rural residences.

Urban residential land expansion and agglomeration in China: a spatial analysis approach

As China has undergone rapid urbanization, the share of land dedicated to urban residential use has increased and changed in space accordingly. The rate at which cities expand their urban footprints, however, is not simply a function of population growth, but rather influenced by a number of factors. This study investigated the spatial pattern of urban residential land (URL) in China and factors that drive the expansion of URL on a national scale. Taking a sample from 345 cities, the study applied spatial autocorrelation and spatial regression analysis for discovering China’s URL changes from 2000 to 2016. The study indicated a continuous growth and obvious spatial agglomeration of URL. These were particularly significant in Eastern regions of China, where the highly agglomerated areas were gradually concentrating and expanding in the Yangtze River Delta region, and the coastal area along Shandong and Hebei provinces over time. This contrasted with a spatial de-agglomeration of URL in Northeastern cities. The study also revealed that the effects of economic agglomeration, residential investment, public infrastructure development and government-planned actions by means of urban construction land planning also play significant roles in influencing URL expansion. Despite complexity of these impacts, policy decision making might look to transform growth-oriented development while promoting sustainable land use and livable residential environment beyond the scale of a city.

The Role of the Federal Reserve in the U.S. Housing Crisis: A VAR Analysis with Endogenous Structural Breaks

This paper reexamines the role of the Federal Reserve in triggering the recent housing crisis. Specifically, we explore if the relationship between the federal funds rate and the housing variables underwent structural changes in the wake of the housing crisis. Using quarterly data spanning 1960–2017, we estimate a VAR model involving federal funds rate, real GDP growth and a housing variable (captured by house price inflation or residential investment share or housing starts) and conduct time series analysis for the pre- and post-crisis periods. While previous studies mostly set break-dates based on events known a priori to split the full sample to subsamples, we endogenously determine structural break points occurring at multiple unknown dates. Our Granger causality analysis indicates that the federal funds rate did not cause house price inflation, although it caused residential investment share and housing starts in the pre-crisis period. In the post-crisis period, the real GDP growth caused residential investment and housing starts while house price inflation had a momentum of its own. Our impulse response and forecast error variance decomposition analysis reinforce these results. Overall, our findings suggest that housing volume fluctuates more than house prices over the business cycle.

Time to build and the real-options channel of residential investment

A standard real-options model predicts that time-to-build investment could be delayed by uncertainty over future revenue. We quantify the first-order importance of this mechanism in the 2002–2011 housing boom-bust cycle by developing and estimating a model of sequential irreversible investment with stochastic bottlenecks. We find that the main driver of construction delays during the boom is construction bottlenecks. However, further delay in construction during the bust is caused by an increase in uncertainty, which grew by 21.6% between 2002 and 2009. The model can account for more than one-third of the decline in residential investment between 2002 and 2009.

United States

Real GDP growth advanced at a deceptively strong 3.1% annualised pace in Q1, though the composition of growth revealed that the economy is cooling. Consumer outlays (+0.9%) posted the weakest gain in a year, business investment (+4.4%) moderated further, and residential investment (−2.0%) posted its fifth straight contraction. Meanwhile, net trade boosted growth a whopping 1.0ppt on top of a 0.7ppt growth contribution from inventories.

Housing slump could cut world growth to decade‐low

▀ A combined slump in house prices and housing investment in the major economies could cut world growth to a 10‐year low of 2.2% by 2020 – and to below 2% if it also triggered a tightening in global credit conditions. ▀ In such a scenario, inflation would remain well below target in the main economies, and US Fed rates would be up to 100 basis points lower than in our baseline by 2021. ▀ Signs of a global house price downturn are already visible, with around a third of our sample of economies seeing falling prices and world residential investment starting to decline. High house price valuations add to the risk that this downturn will deepen in the coming quarters, hitting consumer spending. ▀ Using the Oxford Global Economic Model, we find that a 10% fall in house prices and an 8% fall in housing investment both cut growth by around 0.3%‐0.4% across regions. Adding a sharp Chinese downturn, such as that seen in 2015, has a large additional impact on growth in Asia.

Housing Cycle and Exchange Rates

This paper documents that the housing cycle, measured by the residential investment share, is a strong in-sample and out-of-sample predictor for the dollar up to twelve quarters. Housing construction is negatively associated with risk premia in equity and bonds, but positively with foreign currency premia. We study a model with external habit preferences over tradable nonhousing consumption only, which implies counter-cyclical SDF volatility and procyclical demand for nontradable housing consumption. The predictability for excess returns in foreign currencies and other assets arises endogenously. The currency predictability is robust to a host of additional checks and holds for other G10 currencies.

United States

Real GDP grew at a slower 2.2% annualized pace in Q4 2018, marking a substantial slowdown from 4.2% in Q2 and 3.4% in Q3. While consumer spending cooled to 2.5% growth, business investment picked up to 5.4% and residential investment remained depressed with a 3.5% contraction in Q4. Net trade exerted a 0.1 ppt drag on growth in Q4, offsetting the contribution from inventories.

Respondents’ perception of Risk Factors on Residential Property Development in Abuja, Nigeria

Significant risk factors such as social, technological, economic, environmental and political in the timing development, minimization of cost and expected return as they influence the successful delivery process of residential property development were investigated in this study towards enhancing real estate development decisions. This is expedient because it has been argued that the link between project success criterions determines a successful project delivery. Data were obtained from members of Real Estate Developers Association (REDAN) in Abuja through the use of a self-administered questionnaire. The respondents were asked to rate the influence of risk factors on residential property development parameters, and the data were computed using logistic regression analysis. The study revealed that real estate developers were more concerned with the influence of economic and technological risk than other sources of risk. Also, the statistical effects were computed through logistic regression analysis. It was explained by significant value (p<0.05) which depicts the likelihood of the risk factor which could either be positive or negative, as explained by beta (β). The findings revealed the effect of economic risk factors in timing development to be (β=1.833, p<0.05). Also, the effect of technological risk factors to influence development cost were found to be (β=--.187, p<0.05) while the effect of economic risk factors on return was found to be (β=1.026, p<0.05). The main contribution of the study to the body of knowledge is developing a risk factors assessment technique for practitioners and academia to assess the residential property development performance as related to timely completion, cost and returns to enhance the need to develop competence in managing and minimizing the effect of risk factors on the residential investment appraisal.
 Keywords: Development appraisal, Expected return, Profit maximization, Residential property, Risk analysis, Time.

Respondents’ perception of Risk Factors on Residential Property Development in Abuja, Nigeria

Significant risk factors such as social, technological, economic, environmental and political in the timing development, minimization of cost and expected return as they influence the successful delivery process of residential property development were investigated in this study towards enhancing real estate development decisions. This is expedient because it has been argued that the link between project success criterions determines a successful project delivery. Data were obtained from members of Real Estate Developers Association (REDAN) in Abuja through the use of a self-administered questionnaire. The respondents were asked to rate the influence of risk factors on residential property development parameters, and the data were computed using logistic regression analysis. The study revealed that real estate developers were more concerned with the influence of economic and technological risk than other sources of risk. Also, the statistical effects were computed through logistic regression analysis. It was explained by significant value (p<0.05) which depicts the likelihood of the risk factor which could either be positive or negative, as explained by beta (β). The findings revealed the effect of economic risk factors in timing development to be (β=1.833, p<0.05). Also, the effect of technological risk factors to influence development cost were found to be (β=--.187, p<0.05) while the effect of economic risk factors on return was found to be (β=1.026, p<0.05). The main contribution of the study to the body of knowledge is developing a risk factors assessment technique for practitioners and academia to assess the residential property development performance as related to timely completion, cost and returns to enhance the need to develop competence in managing and minimizing the effect of risk factors on the residential investment appraisal. Keywords: Development appraisal, Expected return, Profit maximization, Residential property, Risk analysis, Time.