The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest

Mortgage interest tax deductibility is needed to treat debt and equity financing of homes equally. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s.

Inequalities in Access to Employment and the Impact on Wellbeing: A Criterion for Spatial Planning?

This paper attempts to address three questions: (1) How unequal is access to employment and the wellbeing associated with it? (2) What is the money value consumers place on access to employment? and (3) How does the inequality of access to employment correspond to the geographical pattern of variation in social deprivation? On the basis that house prices, once adjusted for property type and size, reflect variation quality of life across space, econometric estimates of the impact of employment access on house prices can be used to simulate the impact on inequality of wellbeing. With this rationale in mind, we use the Osland and Pryce (2009) house price model to derive an appropriate measure of Access Welfare - the wellbeing associated with locating at a given distance to employment - and to put a money value on that welfare. The model also allows us to incorporate the negative externalities associated with living in close proximity to centres of employment, and the complexities that arise from the existence of multiple employment centres of varying size. We use Gini and Atkinson coefficients and kernel density estimation to analyse the inequalities observed

Cycles of caring:transitions in and out of unpaid care

Our new research, undertaken by Centre for Care colleagues, Maria Petrillo, Matt Bennett and Gwilym Pryce, is released for Carers Rights Day (24th November 2022) and shows the astonishing numbers of people in the UK starting or ending an unpaid caring role each year

Assessing, perceiving and insuring credit risk

This thesis is concerned with the assessment, perception and insurance of credit risk. The thesis aims to make contributions both within these areas, and at specific points of interface between them. No attempt is made to develop a single unifying thesis. Rather, a series of partial models are developed, both theoretical and empirical, that develop and connect particular facets of financial economics. The first model demonstrates how movements in market risk produce movements in lender risk-assessment effort. It is demonstrated that deleterious movements in market-wide risk can actually produce a fall in assessment effort. The capricious nature of risk assessment causes changes in the lender's perception of the weights placed on determinants. This has important implications for borrowers' attempts to minimize risk premiums. Time-variability of signal-weights is tested using structural break tests on ordinary least squares and fixed effects panel models. Results suggest a fluid relationship between risk and determinants. Central to empirical investigation is the measurement of perceived risk. A critique of potential measures rejects the use of interest rate spreads - the most commonly used measure - on the basis that they do not take into account the possibility of credit rationing. A model is then constructed to reproduce the standard explanation of credit rationing - Adverse Selection induced Credit Rationing Equilibrium (ASCRE). This model is then extended to include classificatory risk assessment. Assessment is found to reduce the scope for ASCRE, and to cause favourable selection. Credit insurance is then included, and it is found that insurance cover makes risk assessment less of an imperative to lenders, and reduces the utility losses from raising interest rates. The parallel implication is that credit insurance weakens ASCRE, to the extent that full insurance with flat-rate premiums removes the possibility of ASCRE altogether. If the terms of insurance are made contingent on the terms of the loan, a new form of credit rationing emerges: Contingent Insurance induced Credit Rationing Equilibrium (CICRE). CICRE is separate, but not mutually exclusive, to ASCRE. A theoretical model of the demand for loan insurance is developed, and empirically estimated, in the context of the UK mortgage market. Inter alia, the model examines the role of auto-perception of risk determining credit insurance demand. Results reveal the take-up of credit insurance to be relatively insensitive to the borrower's perception ofhis/her own risk

Rhetoric in the language of real estate marketing

“Des. Res.”, “rarely available”, “viewing essential” – these are all part of the peculiar parlance of housing advertisements which contain a heady mix of euphemism, hyperbole and superlative. Of interest is whether the selling agent’s penchant for rhetoric is spatially uniform or whether there are variations across the urban system. We are also interested in how the use of superlatives varies over the market cycle and over the selling season. For example, are estate agents more inclined to use hyperbole when the market is buoyant or when it is flat, and does it matter whether a house is marketed in the summer or winter? This paper attempts to answer these questions by applying textual analysis to a unique dataset of 49,926 records of real estate transactions in the Strathclyde conurbation over the period 1999 to 2006. The analysis opens up a new avenue of research into the use of real estate rhetoric and its interaction with agency behaviour and market dynamics

Reconsidering the Relationship between Air Pollution and Deprivation

This paper critically examines the relationship between air pollution and deprivation. We argue that focusing on a particular economic or social model of urban development might lead one to erroneously expect all cities to converge towards a particular universal norm. A naive market sorting model, for example, would predict that poor households will eventually be sorted into high pollution areas, leading to a positive relationship between air pollution and deprivation. If, however, one considers a wider set of theoretical perspectives, the anticipated relationship between air pollution and deprivation becomes more complex and idiosyncratic. Specifically, we argue the relationship between pollution and deprivation can only be made sense of by considering processes of risk perception, path dependency, gentrification and urbanization. Rather than expecting all areas to eventually converge to some universal norm, we should expect the differences in the relationship between air pollution and deprivation across localities to persist. Mindful of these insights, we propose an approach to modeling which does not impose a geographically fixed relationship. Results for Scotland reveal substantial variations in the observed relationships over space and time, supporting our argument

Housing prices and multiple employment nodes: is the relationship nonmonotonic?

Standard urban economic theory predicts that house prices will decline with distance from the central business district. Empirical results have been equivocal, however. Disjoints between theory and empirics may be due to a nonmonotonic relationship between house prices and access to employment arising from the negative externalities associated with proximity to multiple centres of employment. Based on data from Glasgow (Scotland), we use gravity-based measures of accessibility estimated using a flexible functional form that allows for nonmonotonicity. The results are thoroughly tested using recent advances in spatial econometrics. We find compelling evidence of a nonmonotonic effect in the accessibility measure and discuss the implications for planning and housing policy

Budget 2017: experts respond

First paragraph: The UK chancellor of the exchequer, Philip Hammond, has delivered a budget which offered help to first-time home buyers and the prospect of more money for workers in the National Health Service, but his speech was partly overshadowed by sharpcuts to GDP growth forecastsfrom the Office of Budget Responsibility (OBR). Our team of academics deliver their verdict on the measures introduced and opportunities missed