May 16 and 17th, 2019 - Wisconsin School of Business
Link to Full Agenda: Wisconsin Real Estate Research Conference Agenda
Thursday, May 16th:
|12:00am - 1:00pm||Grainger 3335|
|Northwestern, Kellogg School of Business||See Abstract Below||"No Job, No Money, No Refi:|
Frictions to Refinancing in a Recession"
|1:00pm - 2:00pm||Grainger 3335||Jacob Sagi||University of North Carolina||See Abstract Below||"Monetary Policy & Commercial Real Estate Price Dynamics"|
|2:00pm - 2:30pm||Coffee/Tea Break|
|2:30pm - 3:30pm||Grainger 3335||Joseph Tracy||Federal Reserve Bank - Dallas||See Abstract Below||"The Price to Rent Ratio: A Macroprudential Application"|
|3:30pm - 4:30pm||Grainger 3335||Huw LLoyd-Ellis||Queen's University, Kingston||See Abstract Below||"Heterogeneity, Frictional Assignment and|
|4:30pm - 5:15pm||Break|
|5:15pm||Depart 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 - 8:00pm||Betty Lou Dinner Boat Cruise around Lake Monona|
Friday, May 17th
|9:00am - 10:00am||Grainger 3335||Amir Kermani||University of California -Berkeley||See Abstract Below||"Inflation and Capital Misallocation"|
|10:00am - 11:00am||Grainger 3335||Vincent Yao||Georgia State University||See Abstract Below||"Property Rights and Housing Markets"|
|11:00am - 11:30am||Coffee/Tea Break|
|11:30am - 12:30pm||Grainger 3335||Wenlan Qian||National University of Singapore||See 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 - 3:30pm||Grainger 3335||David Albouy||University of Illinois||See Abstract Below|
|3:30pm - 4:30pm||Grainger 3335||Chris Parsons||USC, Marshall School of Business||See Abstract Below||"Urban Vibrancy and Value Creation"|
Professor Huw Lloyd-Ellis, Queen's University, Kingston
"Heterogeneity, Frictional Assignment and
A model of the distribution of home-ownership in a city is developed. Heterogeneous houses are built by a competitive development industry and either
"No Job, No Money, No Refi:
Frictions to Refinancing in a Recession"
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"
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"
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"
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""
|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”
|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.