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May 16 and 17th, 2019 - Wisconsin School of Business

Link to Full Agenda: Wisconsin Real Estate Research Conference Agenda

Thursday, May 16th:

12:00am - 1:00pmGrainger 3335

Anthony Defusco

Northwestern, Kellogg School of BusinessSee Abstract Below"No Job, No Money, No Refi:
Frictions to Refinancing in a Recession"
1:00pm - 2:00pmGrainger 3335Jacob SagiUniversity of North CarolinaSee Abstract Below"Monetary Policy & Commercial Real Estate Price Dynamics"
2:00pm - 2:30pmCoffee/Tea Break
2:30pm - 3:30pmGrainger 3335Joseph TracyFederal Reserve Bank - DallasSee Abstract Below"The Price to Rent Ratio: A Macroprudential Application"
3:30pm - 4:30pmGrainger 3335Huw LLoyd-EllisQueen's University, KingstonSee Abstract Below"Heterogeneity, Frictional Assignment and
4:30pm - 5:15pmBreak
5:15pmDepart via Lyft or Uber for Betty Lou Dinner/Cash Bar Boat Cruise: Pick-up location @ Cannery Row behind Sardines (617 Williamson Street). Must be there by 5:45pm for safety briefing.  *** This event is by invitation only (speakers and department faculty) RAIN OR SHINE
5:45pm - 8:00pmBetty Lou Dinner Boat Cruise around Lake Monona

Friday, May 17th

9:00am - 10:00amGrainger 3335Amir KermaniUniversity of California -BerkeleySee Abstract Below"Inflation and Capital Misallocation"
10:00am - 11:00amGrainger 3335Vincent YaoGeorgia State UniversitySee Abstract Below"Property Rights and Housing Markets"
11:00am - 11:30amCoffee/Tea Break
11:30am - 12:30pmGrainger 3335Wenlan QianNational University of SingaporeSee Abstract Below"Housing Booms and Shirking*"

12:30pm - 2:30pm

Lunch at the University Club - 803 State Street, Ph: 262-5023

Reservation for 20 @ 12:30pm (speakers, faculty and invited guests)

2:30pm - 3:30pmGrainger 3335David AlbouyUniversity of IllinoisSee Abstract Below

“Unlocking Amenities: Estimating Public Good Complementarity''

3:30pm - 4:30pmGrainger 3335Chris ParsonsUSC, Marshall School of BusinessSee Abstract Below"Urban Vibrancy and Value Creation"


Professor Huw Lloyd-Ellis, Queen's University, Kingston

"Heterogeneity, Frictional Assignment and

Image result for Huw Lloyd Ellis

A model of the distribution of home-ownership in a city is developed. Heterogeneous houses are built by a competitive development industry and either
rented competitively or sold through directed search to households which differ in wealth and sort over housing types. In the absence of both financial
restrictions and constraints on house characteristics, higher income households are more likely to own and lower quality housing is more likely to be rented.
Calibrated to match average features of housing markets within U.S. cities, the model is qualitatively consistent with U.S. data on the relationships between
observed differences in median income, inequality, median household age, and  construction/land costs across cities and both home-ownership and the average
cost of owning vs. renting. Policies designed to improve housing affordability raise both housing quality and ownership for lower income households while
lowering housing quality (but not ownership) for high income ones.

Professor Anthony DeFusco, Northwestern - Kellogg School of Business

"No Job, No Money, No Refi:
Frictions to Refinancing in a Recession"

About Image

We study how employment documentation requirements and out-of-pocket closing costs constrain mortgage refinancing. These frictions, which bind most          severely during recessions, may significantly inhibit monetary policy pass-through. To study their effects on refinancing, we exploit an FHA policy change that      excluded unemployed borrowers from refinancing and increased others' out-of-pocket costs substantially. These changes dramatically reduced refinancing rates, particularly among the likely unemployed and those facing new out-of-pocket costs. Our results imply that unemployed and liquidity-constrained borrowers        have a high latent demand for refinancing. Cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy.

Professor Christopher Parsons, USC - Marshall School of Business

"Urban Vibrancy and Value Creation"

Chris Parsons Headshot

City level differences in industry-adjusted Tobin's q, an estimate of the value created for shareholders, are large, and have widened sharply over the last twenty years. Proxies for a city's appeal to high value-added workers, such as existing education rates and favorable weather, are strongly associated with Tobin's q, both in levels and changes. These results indicate that shareholders have captured a significant portion of the benefits associated with superior locations. The higher stock prices of firms in these locations appear to be driven by future growth opportunities, rather than improvements in current operating efficiency.

Joseph Tracy, Federal Reserve Bank - Dallas

"The Price to Rent Ratio: A Macroprudential Application"

Joseph S. Tracy

We examine the potential for the price-to-rent ratio to be used as a macro-prudential tool. Standardized appraisal methods, such as the comparable sales and replacement cost appraisal are not designed to identify speculative housing markets. In addition to these methods, appraisers could estimate the current market rent for a property.  We argue that the resulting price-to-rent ratio would provide a useful signal for speculative pressures. We show this by estimating price-to-rent ratios for home purchases using the American Housing Survey. We document that the distribution of price-to-rent ratios shifted up dramatically during the housing boom. We illustrate how the price-to-rent ratio could be incorporated into a lending policy so as to generate counter-cyclical loan-to-value ratios.

Professor Welan Qian, National University of Singapore

"Housing Booms and Shirking*"


This paper studies the incentive costs of housing booms. We use the type and actual time stamps of 9.3 million credit card transactions by over 200,000 cardholders from a leading Chinese commercial bank to detect non-work-related behavior during work hours. After positive exogenous shocks to house prices, employees in the treated cities experienced an immediate and permanent increase (by 8% per month) in their propensity to use work hours to attend to personal needs. The effect is not driven by an overall increase in credit card use in the post-shock period, and we find no effect in the neighboring, unaffected cities or among the non-working population in the “shocked” cities.  The post-shock response is driven by homeowners, with a greater impact among owners with higher housing wealth (e.g., those with multiple homes). Further analyses find no evidence of the treatment group working harder at other hours of workdays, and that the effect concentrates in early and near-lunch hours, and on days near the end of the workweek. In addition, the response is more pronounced among employees with lower work incentives or higher monitoring costs. Overall, findings in this paper offer novel insight into the real effect of house price increase through its distortionary effect on work effort—our estimate implies an elasticity of shirking propensity with respect to house price of 1.6.

Professor Vincent Yao, Georgia State University

"Property Rights and Housing Markets"

Vincent Yao

Secure and complete property rights are considered a key determinant of long-term economic growth, investment and financial development. We exploit a unique feature of residential house markets in China, where dual property rights coexist due to dual land ownership in the constitution, that is, urban land belongs to the state whereas rural land is collectively owned. The price difference between dual property rights for otherwise identical properties reflects the present value of cash ow differentials due to market liquidity, collateralization opportunities in borrowing, and uncertainty associated with future disposition. We estimate the relative price of different property rights to be 66 percent between limited and full property rights. We also study the effect of a municipal zoning change as a natural experiment on the relative price. Zoning codes reduce the uncertainty related to compensation from future demolition. Our estimates indicate government                                          regulation plays an important role in a housing market that has experienced rapid appreciation over a long period.

Professor David Albouy, University of Illinois - Urbana

"Unlocking Amenities: Estimating Public Good Complementarity""

Image result for David Albouy

Public goods may exhibit complementarities essential in determining their individual value. Our results indicate that improving safety near parks can turn them
from public bads to goods. Ignoring complementarities may lead to i) undervaluing the potential value of public goods; ii) overestimating heterogeneity in preferences;
and iii) understating the value of public goods to low income households. Recent reductions in crime have \unlocked" $3 billion in property value in these three cities.
Still over half of the potential value of park proximity (approximately $9 billion) remains locked in.

Professor Jacob Sagi, University of North Carolina - Chapel Hill

“Monetary Policy & Commercial Real Estate Price Dynamics”

Jacob Sagi

Commercial real estate (CRE) is a major institutional asset class to which the banking sector has considerable exposure. Because CRE prices tend to be smoothed it is hard to infer their relationship with fundamentals. This is compounded by the presence of complicated underlying dynamics. For instance, inflation acts to increase discount rates but may also be associated with higher rental revenues. Thus it is difficult to sign the impact of inflation on CRE prices, especially given that the dynamics of macro fundamentals periodically undergo regime changes. Similar considerations apply to real economic growth and, by extension, interest rates. We estimate a model consistent with rational expectations where monetary policy regimes impact asset/macro fundamentals and are anticipated in prices. We find that real estate fundamentals and prices vary with macro fundamentals and are highly sensitive to potential regime changes in monetary policy. Correspondingly, information in real estate prices improves the identification of monetary policy model parameters. Our model allows us to assess the impact of policy regime changes, quantify sources of systematic risk in real estate, and price mortgages (which are sensitive to the joint dynamics of interest rates and real estate prices).

Professor Amir Kermani, University of California - Berkeley

"Inflation and Capital Misallocation"

What are the welfare costs of inflation? The evidence to date shows smalls costs of moderate inflation due to two leading explanations: inefficient price dispersion and the inflation tax on liquid assets. In this paper, we argue that the costs of capital misallocation resulting from moderate, low-frequency changes in inflation are in fact orders of magnitude larger than the costs due to the above two explanations. We begin by constructing a novel dataset for more than 50 countries using a variety of sources. We document that for low to medium inflation: (i) housing is a good hedge against inflation risk whereas the stock market is not, (ii) their differential inflation exposure follows from their underlying cash-flows, i.e., rents are highly correlated with inflation whereas corporate profits are not, and (iii) household's portfolios, as well as the composition of aggregate investment, are tilted towards real estate. These results do not vary with the level of a country's financial development and are robust to using food prices as an instrument for aggregate inflation as well as restricting to countries without active monetary policy. Finally, we use this evidence to discipline a canonical model of portfolio choice with Epstein-Zin preferences and IID log-normal returns. We find that the welfare cost of capital misallocation resulting from moderate inflation risk is equivalent to about 0.2 percent reduction in the economy’s growth rate. 

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