531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page i HOUSING MARKETS AND THE ECONOMY ___–1 ___ 0 ___+1 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page ii –1___ 0___ +1___ 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page iii HOUSING MARKETS AND THE ECONOMY Risk, Regulation, and Policy o ESSAYS IN HONOR OF KARL E. CASE Edited by EDWARD L. GLAESER AND JOHN M. QUIGLEY ___–1 ___ 0 ___+1 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page iv © 2009 by the Lincoln Institute of Land Policy All rights reserved. Library of Congress Cataloging- in- Publication Data Housing markets and the economy: risk, regulation, and policy: essays in honor of Karl E. Case / edited by Edward L. Glaeser and John M. Quigley. p. cm. Papers from a conference sponsored by the Lincoln Institute of Land Policy, held in Dec. 2007. Includes index. ISBN 978- 1- 55844- 184- 2 1. Housing—United States— Congresses. 2. Housing policy— United States— Congresses. 3. Housing—Prices—United States— Congresses. 4. Housing—Law and legislation— United States— Congresses. I. Case, Karl E. II. Glaeser, Edward L. (Edward Ludwig), 1967– III. Quigley, John M., 1942–HD7293.H678 2009 333.33'80973—dc22 2008043990 Designed by Westchester Book Composition Composed in Electra LH Regular by Westchester Book Composition in Danbury, Connecticut. Printed and bound by (printer) in (city, state). The paper is (paper name), an acid- free, recycled(?)sheet. –1___ 0___ MANUFACTURED IN THE UNITED STATES OF AMERICA +1___ 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page v Contents List of Figures vii List of Tables ix Foreword xiii GREGORY K. INGRAM Part I Introduction 1 Karl E. Case, Housing, and the Economy 3 EDWARD L. GLAESER AND JOHN M. QUIGLEY Part II Housing Risks and Choices 2 Derivatives Markets for Home Prices 17 ROBERT J. SHILLER Commentary Timothy J. Riddiough 34 Commentary ROBERT VAN ORDER 37 3 Home Equity Insurance: A Pi lot Project 39 ANDREW CAPLIN, WILLIAM GOETZMANN, ERIC HANGEN, BARRY NALEBUFF, ELISABETH PRENTICE, JOHN RODKIN, TOM SKINNER, AND MATTHEW SPIEGEL 4 Spatial Variation in the Risk of Home Owning 83 TODD SINAI 5 Arbitrage in Housing Markets 113 EDWARD L. GLAESER AND JOSEPH GYOURKO Part III Housing Regulation and Policy 6 Subprime Mortgages: What, Where, and to Whom? 149 CHRIS MAYER AND KAREN PENCE Commentary C. F. SIRMANS AND KERRY D. VANDELL 197 ___–1 ___ 0 ___+1 v 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page vi vi | Contents 7 Government- Sponsored Enterprises, the Community Reinvestment Act, and Home Own ership in Targeted Underserved Neighborhoods 202 STUART A. GABRIEL AND STUART S. ROSENTHAL Commentary LAWRENCE D. JONES 230 8 Siting, Spillovers, and Segregation: A Reexamination of the Low Income Housing Tax Credit Program 233 INGRID GOULD ELLEN, KATHERINE M. O’REGAN, AND IOAN VOICU Commentary DANIEL P. MCMILLEN 268 9 Mea sur ing Land Use Regulations and Their Effects in the Housing Market 271 JOHN M. QUIGLEY, STEVEN RAPHAEL, AND LARRY A. ROSENTHAL Commentary RICHARD K. GREEN 301 Commentary STEPHEN MALPEZZI 304 10 Do Real Estate Agents Compete on Price? Evidence from Seven Metropolitan Areas 308 ANN B. SCHNARE AND ROBERT KULICK Part IV Urban Form 11 The Dynamics of Job Creation and Destruction and the Size Distribution of Establishments 351 NANCY E. WALLACE AND DONALD W. WALLS Postscript: What’s Better than Beating the Yankees? 397 DAVID WARSH Publications by Karl E. Case (1976–2000) 401 Contributors 405 Index 000 About the Lincoln Institute of Land Policy 409 –1___ 0___ +1___ 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page vii Figures 3.1 Index Plot for Selected Zip Codes 58 3.2 Insurance Claims to Date by Year of Issuance 63 3.3 Projected Claims Following Origination 65 3.4 Capital in Various Scenarios 69 3.5 Price Paths Associated with Different Paths of Capital 69 3.6 OFHEO Indices 80 4.1 Relationship of House Price Volatility to Rent Volatility, 1990–2002 99 4.2 Standard Deviation of Real Annual House Price Growth Versus Average Covariance of Real Annual House Price Growth with Other MSAs 104 5.1 House Prices and Incomes Across Metropolitan Areas, 2000 119 5.2 House Prices and Winter Warmth Across Metropolitan Areas, 1990 120 5.3 Twenty- Year Changes in House Prices and Incomes, 1980–2000 122 5.4 Housing Unit Size 127 6.1a Subprime Originations by Year 158 6.1b Subprime Originations as a Share of HMDA Originations 160 6.2 Percentage of Housing Units with Subprime Loan Originations in 2005, LP 166 6.3 Percentage of Housing Units with Subprime Loan Originations in 2005, HMDA Higher- Priced 167 6.4 Percentage of Housing Units with Subprime Loan Originations in 2005, HUD Subprime Lender 168 6.5 Percentage of Housing Units in Southern California with Subprime Loan Originations in 2005, LP 172 8.1 Location of LIHTC Developments in New York City 249 9.1 Cities and Counties of the San Francisco Bay Area 274 9.2 California Home Values and Number of Growth- Restricting Mea sures, 1990 and 2000 276 9.3 California Rents and Number of Growth- Restricting ___–1 Mea sures, 1990 and 2000 277 ___ 0 ___+1 vii 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page viii viii | Figures 9.4 Housing Prices and Regulation, U.S. Metropolitan Areas, 1990 278 9.5 Indexes of Growth Management for the San Francisco Bay Area 281 9.6 Scatterplot: BLURI Factor Scores by Raw Sum of Indexes 287 9.7 BLURI for the San Francisco Bay Area 288 10.1 Housing Market Trends in Selected Markets 321 10.2 Average Quarterly Buy- Side Commission Rates, 2000–2007 324 10.3 HPA Versus Commission Trends by MSA 327 10.4 Distribution of Commission Rates, 2000 and 2007 328 11.1 Total Job Creations and Destructions in the United States, 1990–2005 329 11.2 Total Establishment Births and Deaths in the United States, 1990–2005 330 11.3 Total Venture Capital Investments by Census Regional Divisions, 1995–2006 331 11.4 Total Origination of Small Business Loans of Less than $1 Million by Census Regional Divisions, 1995–2005 332 –1___ 0___ +1___ 531-38784_ch00_1P.qxp 1/14/09 1:00 AM Page ix Tables 3.1 Standard Deviation of Returns at Different Time Horizons 56 3.2 Index Per for mance in Syracuse 58 3.3 Index Per for mance in New Haven 60 3.4 Index Per for mance in Los Angeles 60 4.1 Factors that Affect Rent Variance 91 4.2 Real Rent Volatility by MSA 94 4.3 Real House Price Volatility by MSA 97 4.4 Average House Price Correlations Among MSAs, 1990–2002 102 4.5 Average House Price Covariances Among MSAs, 1990–2002 103 4.6 Net Rent Volatility by MSA and Expected Length of Stay 106 5.1 Comparing the Owner- Occupied and Rental Housing Stocks 126 5.2 Comparing House Price and Rental Growth in 44 Markets with Continuous Rent Data 129 5.3 Is Actual Real House Price Appreciation Consistent with Forecasts from a User Cost Model? 130 5.4 Estimating the Benefits of Short- Term Predictability 136 5.5 Price Changes Within Market Over Time 140 6.1 Subprime Originations in the LP and HMDA Data, 2004–2006 162 6.2 Subprime Originations by Zip Code, 2004–2006 164 6.3 LP Subprime Originations as a Share of Housing Units by State, 2005 169 6.4 LP Subprime Originations as a Share of Housing Units by MSA, 2005 170 6.5 LP Subprime Originations as a Share of All Originations by State, 2005 173 6.6 LP Subprime Originations as a Share of All Originations by MSA, 2005 174 6.7 Sample Characteristics, 2005 177 6.8 Incidence of LP Subprime Originations in MSA Zip Codes, 2005 180 6.9 Incidence of LP Subprime Refinancings in ___–1 MSA Zip Codes, 2005 184 ___ 0 ___+1 ix 531-38784_ch00_1P.qxp 1/14/09 1:01 AM Page x x | Tables 6.10 Incidence of HMDA Higher- Priced Subprime Originations in MSA Zip Codes, 2005 185 6.11 Incidence of HMDA HUD Subprime Originations in MSA Zip Codes, 2005 187 6.12 Incidence of LP Subprime Originations in MSA Zip Codes, 2005 190 7.1 HUD- Specified Affordable Housing Loan Purchase Goals 208 7.2 Impact of GSE Underserved Status on GSE Purchase Share 209 7.3 Impact of GSE Underserved Census Tract Status 217 7.4 Impact of CRA Census Tract Status 219 7A.1 Impact of CRA Census Tract Status on Nonconforming Originations 225 8.1 LIHTC Units Placed in Ser vice by Year 236 8.2 Distribution of Low- Income LIHTC Units by Neighborhood Poverty Level 242 8.3 Regression Results: Change in Tract Poverty Rate, 1990–2000 246 8.4 Distribution of LIHTC Units in New York City 248 8.5 Characteristics of Residential Properties Sold 253 8.6 Regression of Spillover Effects on Property Values in New York City 255 8.7 Regression Results: Segregation of the Poor 262 8.8 Regression Results: Segregation of the Near Poor 263 9.1 BLURI: Po liti cal Influence Index 283 9.2 BLURI: Project Approval and Zoning Change Indexes 284 9.3 BLURI: Development Caps and Density Restrictions Indexes 285 9.4 Correlation Matrix of BLURI Subindexes and BLURI Values 286 9.5 Selected Project Level Indicators by Product Type (Survey of Developers) 289 9.6 Selected Project Level Indicators by Controversy Level (Survey of Developers) 290 9.7 Selected Project Level Indicators by Product Type (Survey of Environmental Professionals) 291 9.8 Selected Project Level Indicators by Controversy Level (Survey of Environmental Professionals) 291 –1___ 9.9 Regulatory Restrictions and the Value of Owner- Occupied 0___ Housing 293 +1___ 531-38784_ch00_1P.qxp 1/14/09 1:01 AM Page xi Tables | xi 9.10 Regulatory Restrictions and Monthly Rents 295 9.11 Project Approvals Index, Po liti cal Influence Index, and House Values 296 9A.1 Factor Loadings and Correlations Between Subindexes and BLURI I 297 9A.2 BLURI: Open Space, Infrastructure Improvement, and Inclusionary Housing Indexes 297 9A.3 BLURI: Approval Delay Index 298 9A.4 BLURI: Rate of Approval Index 298 10.1 Trends in Average Commission Rates 316 10.2 Negotiation of the Agent’s Commission or Fee 317 10.3 House Price Appreciation in Selected Metropolitan Areas 319 10.4 Applicable State Laws 320 10.5 Means and Standard Deviations of Buy- Side Commissions, Selected Years 332 10.6 Summary of Regression Results 334 10.7 Estimated Elasticity of Commission Rate to Housing Prices 341 10A.1 OLS Regressions 342 11.1 Summary of the Size Distribution of Establishments 358 11.2 Summary Statistics for the Capital- Labor Ratios by BEA Industry Sectors, 1995–2005 362 11.3 Summary Statistics for Capital Investment Flows by States Within Regional Divisions of the U.S.