Creating a Constant-Quality Index for Small Multifamily Rental Housing

Researchers since the early 1960s have constructed constant-quality price indices (CQIs) for single-family dwellings. This paper, however, applies the methodology to construct CQIs for a different property type - small multifamily rental housing with two to four units (MRH) - so that price changes can be measured. Over the period 1983 through 1988, MRH prices increased 70% in Connecticut, but decreased nearly 65% in Baton Rouge, Louisiana. These locations and the sample period are chosen because Connecticut's economy boomed, while Baton Rouge's collapsed; as well, Congress debated and passsed the 1986 Tax Reform Act (TR). TRA affected both regions' MRH prices, but other factors contributed to price changes, also.

Aggregation Bias in Price Indices for Multi-Family Rental Properties

This article examines aggregation bias in price index construction. Specifically, we test whether changes in values of 2- to 4-unit, multi-family rental housing properties vary systematically in the same market across property size. Moreover, we examine the time trend differences across locations within a geographic region for various sized multiplex properties, as well as investigate how size should be measured. Results suggest that absolute price changes are significantly different across property size, as determined by living area, and that the time trend does not differ across locations within a geographic region. Further research using this methodology is recommended for other property types.

Modeling Space-Time Data Using Stochastic Differential Equations

This paper demonstrates the use and value of stochastic differential equations for modeling space-time data in two common settings. The first consists of point-referenced or geostatistical data where observations are collected at fixed locations and times. The second considers random point pattern data where the emergence of locations and times is random. For both cases, we employ stochastic differential equations to describe a latent process within a hierarchical model for the data. The intent is to view this latent process mechanistically and endow it with appropriate simple features and interpretable parameters. A motivating problem for the second setting is to model urban development through observed locations and times of new home construction; this gives rise to a space-time point pattern. We show that a spatio-temporal Cox process whose intensity is driven by a stochastic logistic equation is a viable mechanistic model that affords meaningful interpretation for the results of statistical inference. Other applications of stochastic logistic differential equations with space-time varying parameters include modeling population growth and product diffusion, which motivate our first, point-referenced data application. We propose a method to discretize both time and space in order to fit the model. We demonstrate the inference for the geostatistical model through a simulated dataset. Then, we fit the Cox process model to a real dataset taken from the greater Dallas metropolitan area.Business Administratio

Price Formation under Small Numbers Competition: Evidence from Land Auctions in Singapore

This paper examines the price formation process under small numbers competition using data from Singapore land auctions. The theory predicts that bid prices are less than the zero-profit asset value in these first-price sealed-bid auctions. The model also shows that expected sales price increases with the number of bidders both because each bidder has an incentive to offer a higher price and because of a greater likelihood that a high-value bidder is present. The empirical estimates are consistent with auction theory and show that the standard land attributes are reflected in auction prices as expected. Working Paper No. 04-0

Contagion and REIT Stock Prices

This article investigates the contagious movement of real estate investment trust (REIT) stock prices in response to real estate news related to financial institutions' real estate portfolios. The basic hypothesis is that because real estate assets are traded infrequently, the market has incomplete information about their true value; thus, REIT stock prices react negatively to announcements of poorly performing real estate portfolios of financial institutions. Consistent with the hypothesis, significantly negative reactions to these announcements are found for a portfolio of sixty-nine REITs during the real estate crisis of 1989--91.

Restructuring Agency Relationships in the Real Estate Brokerage Industry: An Economic Analysis

Recent state legislative reforms of real estate agency relationships suggest that traditional agency law and practice are not meeting the needs of the parties involved in a residential real estate purchase and sales transaction. In this article, we argue that this is due, at least in part, to the bundling of information and representation services provided by brokers. This bundling results in a tradeoff between the benefits of buyers and sellers in sharing information prior to a match, and the cost to the parties individually of revealing information during bargaining. We conclude that, from an economic perspective, effective agency reform must solve this basic conflict, perhaps by unbundling the matching and representation functions.

Repair Expenses, Selling Contracts, and House Prices

This paper examines the impact of repair expenses on the selling price of a house. Using data from settlement statements, we investigate the frequency and extent to which performance of major repairs is part of the sales contract. We find that most homes are restored to a "normally maintained" state each time the home changes hands, and that the cost of bringing the home to this condition is included as part of house selling price. This implies it may be unnecessary to measure maintenance levels when using transaction data to study components of house price or to construct house price indexes.

List Price Information in Residential Appraisal and Underwriting

This article examines the usefulness of listing prices as leading indicators of house values and as predictors of the direction of housing markets. With Multiple Listing Service data from a large metropolitan area, we create two price indexes, using first listing price and then selling price as the dependent variable in the hedonic regressions. The market is then geographically and categorically segmented, and Granger causality tests are performed to analyze the leading aspect of list prices in the list price-sales price relationship. We find that different segments of the market perform quite differently over the time period of our study, suggesting that for data-based appraisal purposes care is needed in determining the manner and level of aggregation. We also find, however, that market list prices continue to convey important information about subsequent selling prices in most market segments.

An Empirical Investigation of Federal Wetlands Regulation and Flood Delineation: Implications for Residential Property Owners

Since the early 1970s, the federal government has undertaken extensive efforts to stem the loss of wetlands by regulating the use of land. This paper investigates the extent to which residential property owners are affected by federal wetlands regulation, by presenting an empirical investigation of such economic consequences. Results suggest that because of the Supreme Court?s holding in United States v. Riverside Bayview Homes, Inc., sale prices of properties located in a wetlands area were discounted nearly eight percent, even after controlling for some sample properties being flood delineated.

The Effects of Occupational Licensing on Complaints Against Real Estate Agents

Does licensing increase the quality of services? This is a major unresolved question in the economic analysis of occupational licensing. This paper provides the first empirical evidence on the simultaneous relationship between anticompetitive effects and minimal quality standards. Using data on real estate agents, we find that restrictions on entry improve the quality of services (by lowering complaints), but, at the same time, there appear to be significant anticompetitive side-effects.