Zhenguo Len Lin

Florida International University | FIU · Hollo School of Real Estate

We investigate whether the cash discount for condos is affected by time on market (TOM). Theoretically and empirically, we show that the cash discount has two components: First, condos purchased with cash sell at a discount compared to mortgage-financed condos, which is in line with the cash discount identified in the housing literature. The second...

We study the effect of housing leverage, measured using the loan‐to‐value (LTV) ratio, on homeowners' retirement decisions. We find that in general, elevated LTV ratios delay retirements. By decomposing the changes of the current LTV ratio into (1) equity extractions, (2) equity build‐up, (3) home value increases, and (4) home value decreases, we f...

We study the effect of housing leverage, measured using the loan-to-value (LTV) ratio, on homeowners' retirement decisions. We find that in general, elevated LTV ratios delay retirements. By decomposing the changes of the current LTV ratio into 1) equity extractions, 2) equity build-up, 3) home value increases, and 4) home value decreases, we find...

This paper studies the value of clean air by analyzing the effect of China's clean air policy. By exploiting the cross-city variation in the timing of policy implementation and using a panel dataset of 280 cities from 2003 to 2018, we find that the clean air policy boosts housing prices by 4.4%. The finding is robust to a series of potential issues...

This paper examines the effect of financial literacy on mortgage stress. Using data from the Panel Study of Income Dynamics (PSID), we find that borrowers with high levels of financial literacy are over 60 percent less likely to suffer from mortgage stress than borrowers with low levels of financial literacy after controlling for observables. Our f...

We investigate housing market distortions with the collusion of agents. The agency problem where agents sell clients' houses with price discounts while selling their own homes with price premiums is quite straightforward. However, the issue that agents collude with each other to further maximize their own interests is elusive. When agents collude,...

The economic and social benefits of homeownership are well documented in the literature. This paper examines whether homeowners are more likely to have charitable donations. Using data from Panel Study of Income Dynamics (PSID), we find strong evidence that homeowners on average are 8.86 percentage points more likely to have charitable donations th...

This paper examines whether there is a housing disparity between homeowners and renters. Using data from the Chinese Urban Household Survey, we find that homeowners on average have much higher housing quality than renters after controlling for household characteristics, regional factors, location, and time fixed effects, and such disparity increase...

Culture and derivative institutions affect household wealth, consumption, and property rights and ownership. Cultural factors also influence the role children play in determining household consumption and wealth accumulation, including acquisition of real property. The present study extends research on these influences by focusing on cultural norms...

Does the degree of neighborhood heterogeneity, in and of itself, contribute to the cross-sectional price variations beyond that attributable to differences in physical characteristics within the neighborhood? This study presents theoretical and empirical investigations to confirm that the degree of property heterogeneity within the neighborhood can...

Education Elites (i.e, higher-educated people) with new ideas and technologies are widely acknowledged to be a source of innovation and the engine of regional economic growth. A city that can attract higher-educated people will ultimately become the winner of the future. This paper examines whether city amenities attract higher-educated people. Usi...

We examine the impact of financial leverage, measured by the loan-to-value (LTV) ratios, on elderly homeowners' mobility and housing tenure choices. Using a 1999-2019 sample from the Panel Study of Income Dynamics (PSID), we find that a higher LTV ratio substantially increases an elderly homeowner's likelihood of exiting homeownership. In particula...

Due to the heterogeneous nature of real estate assets, housing market is characterized by a sequential search and seller's optimal strategies. This paper provides a side-by-side performance comparison of the two competing stopping rules (i.e, the reservation rule and the number rule) in the housing market. It demonstrates that the selling strategie...

Although government-led housing affordability policy is an important issue worldwide, there has been little research on how local governments’ commitment to such policy affects people’s subjective well-being or happiness. By combining the analysis of textual information from provincial governments’ annual working reports and microdata from four wav...

The 1994-1998 housing reform in China allowed state employees to buy their rented public houses at considerably subsidized prices. By exploiting housing reform as an exogenous change in homeownership and employing a differences-in-differences framework, this paper examines the effect of housing reform on labor market participation. Using the data f...

This paper studies how banking deregulation affects homeownership. Exploiting the U.S. intra-state and interstate banking deregulations from 1980s to early 1990s, we find that an exogenous expansion of bank branches increases renters likelihood of becoming homeowners as much as 8.7 percentage points. In addition, the impact is larger on households...

The effect of children on household wealth and consumption patterns in China is investigated. Chinese cultural norms including indulgent care of single children, a strong preference for sons, increasing competition in the marriage market and the importance of homeownership in marriage suggest that the number, gender and age of children may impact a...

We investigate how real estate selling behaviors and transaction outcomes vary with sellers’ motivations. By exploring a unique dataset of residential sales in Beijing, China, we are able to distinguish between consumer sellers and investor sellers. Consumer sellers engage in chained transactions (i.e., selling one and buying another property in pa...

Empirical evidence suggests that when the market becomes increasingly volatile, trading activities may be depressed or even halted. We develop a simple model to formally study the relation between market volatility and asset liquidity in the real estate market. We show that, for both cases of systemic and idiosyncratic volatility, an increase in ma...

Given the long term secular decline in interest rates, assumable financing has been of little concern for decades. But given both the growth of loans insured by the Federal Housing Administration (“FHA”) and recent increase in interest rates, this situation is likely to change very soon. Using data from California, we first document the dramatic in...

This paper provides a theoretical framework to examine how the differences in seller motivation can potentially affect the distribution of home prices. Heterogeneous seller behavior, strategies, and decisions cause observable transaction prices to be "noisy" in the sense that the observed data may be biased indicators of the underlying property val...

Given the long term secular decline in interest rates, assumable financing has been of little concern for decades. But given both the growth of loans insured by the Federal Housing Administration ("FHA") and recent increase in interest rates, this situation is likely to change very soon. Using data from California, we first document the dramatic in...

Was the 2007-09 housing crisis a “correction” to the market? To answer this question, we utilize city-level housing price indices and local economic fundamentals for 20 major US cities. We explore the local housing price movements of each city at every stage of the housing market cycle during the period of 2000 to 2013, as well as the cross-stage c...

We investigate the determinants of the ex-ante risk premium in commercial real estate. Using a 20-year time series and Markov-Switching regression, we find that the ex-ante risk premium is affected by fundamental and non-fundamental determinants, albeit not symmetrically when risk premiums are increasing and decreasing. In particular, we find that...

Real estate transactions are often established through financing. We study the effect of financing on property prices. We show that properties can transact at prices well above their collateral values. Therefore, the commonly used loan-to-value (LTV) ratio suffers a bias that can significantly understate credit risk. This bias is exacerbated when m...

With prices soaring in Chinese superstar cities (i.e., Beijing, Shanghai, Guangzhou and Shenzhen), housing is becoming increasingly unaffordable. This paper investigates whether housing unaffordability crowds out elites in Chinese superstar cities. Using both micro- and macro-level data from China’s Urban Household Survey and China Statistical Year...

Empirical evidence suggests that when the market becomes increasingly volatile, trading activities may be depressed or even halted. We develop a simple model to formally study the relationship between market volatility and asset liquidity in the real estate market. It is shown that, for both cases of systemic and idiosyncratic volatility, an increa...

The nature of the relationship between a property's selling price and its marketing time in the housing market remains an open question to date, despite almost 40 years of inquiry and hundreds of regressions conducted on various data sources. This study attempts to settle the long-standing open question by examining the issue from a new perspective...

Bargaining and mortgage financing have been extensively studied in the literature. However, they have only been studied separately. This paper is the first to embed financing into a bargaining model, and our model yields several new insights. First, we show that financing creates new ground for trading. In contrast to conventional wisdom, our model...

Modern Portfolio Theory is a single-period model developed for the efficient securities market, in which asset prices are implicitly assumed to follow a random walk. It is widely agreed that real estate does not fit into the efficient market paradigm; however, mixed-asset portfolio analysis continues to rely on Modern Portfolio Theory. This paper p...

It is well documented in the literature that long-run asset prices do not follow the random walk, and their returns are not independent and identically-distributed (i.i.d.) over time. But how can this notion – long-run returns and volatilities being horizon dependent-be incorporated into formal pricing models? This paper proposes a unified risk-adj...

Unlike in an efficient market where buyers and sellers are mere price-takers, participants in the real estate market are able to influence ultimate transaction prices through individual search efforts. Such benefit can offset the negative price trend of a declining market and compound the positive price trend of a growing market, suggesting an asym...

Existing research on racial discrimination in mortgage lending has overwhelmingly focused on whether black applicants are more likely to be denied for credit than comparable white applicants. This study investigates whether the approved black applicants are likely charged higher interest rates than their white counterparts. Using data from three wa...

This paper investigates price distortions in dual agent real estate transactions. Consistent with the literature, we find that dual agent has a null effect on sale price. However, dual agent distortions on sale price emerge after controlling for the ownership of the property. We find that dual agent is associated with a 6.35 percent price premium o...

This paper studies the effect of immigrant status on mortgage delinquency. Due to their different social and economic background, immigrant households may not integrate well into the host society and therefore are more likely to be delinquent on mortgages than otherwise identical native-born households. We test this hypothesis by comparing the mort...

This paper identifies a critical issue in the Weighted Repeated Sales (WRS) method – the omission of market risk in the weight estimation model specified by Case and Shiller (1989). It demonstrates that the omission of market risk is conceptually unjustified. Through extensive examination of the real estate market risk, the study not only proposes...

The wide disagreement between academics and practitioners with regard to the optimal real estate allocation in the mixed-asset portfolio is a long standing puzzle. Extensive research focusing on “fine-tuning” the application of Modern Portfolio Theory (MPT) has been unable to reach any consensus. This paper develops an alternative portfolio theory...

Empirical evidence on the relationship between real estate price and selling time (time-on-market (TOM)) is mixed as to whether the price-TOM relationship is positive or negative. Competing theories also suggest opposite predictions about TOM’s impact on selling price. The article examines the price-TOM relationship against the background of varyin...

The wide disagreement between academics and practitioners with regard to the optimal real estate allocation in the mixed-asset portfolio is a long standing puzzle. Extensive research focusing on “fine-tuning” the application of Modern Portfolio Theory (MPT) has been unable to reach any consensus. This paper develops an alternative portfolio theory...

Investment in thinly-traded private assets involves liquidity risk. Existing literature provides limited guidance as it mainly focuses on publicly-traded security assets such as stocks and bonds. This paper develops an analytical tool for quantifying liquidity risk of private assets. Using commercial real estate as a model asset and under reasonabl...

Thinly-traded private assets do not fit into the traditional finance paradigm of a liquid and well-functioning market where trading is continuous and instantaneous. Since private assets cannot be bought and sold easily, they bear liquidity risk. Classical finance theories cannot properly gauge the performance of illiquid private assets because they...

This paper documents women on average pay more for mortgages than men. The disparity cannot be fully explained by traditional variables such as mortgage features, borrower characteristics, and market conditions. While the persistence of gender disparity may suggest discrimination, we offer a different explanation: women pay higher rates because the...

This study examines the heterogeneous appraiser behavior and its implication on the traditional appraisal smoothing theory. We show that the partial adjustment model is consistent with the traditional appraisal smoothing argument only when all the appraisers choose the same smoothing technique. However, if appraiser behavior is heterogeneous and ex...

Commercial real estate has become a widely acceptable asset class to mainstream investors. But real estate investment as an academic discipline has yet to establish its own identity with pricing models and portfolio theories that are more appropriate. This paper reveals the limitations of the classical Modern Portfolio Theory (MPT) and the fallacy...

This paper examines the economic impact of restrictions against keeping domestic pets in residential dwellings. Using a large data sample of condominium sales, we empirically estimate price effects associated with pet restrictions. Our results suggest that an unrestricted pet policy creates a significant premium in condominium price, along with dis...

This study examines the heterogeneous appraiser behavior and its implication on the traditional appraisal smoothing theory. We show that the partial adjustment model is consistent with the traditional appraisal smoothing argument (Geltner 1989) only when all the appraisers choose the same smoothing technique. However, if appraiser behavior is heter...

This study reexamines the price effects of age restrictions on housing prices. Our data cover a period when the housing market is taking a steep downturn. We argue that, when housing prices are falling, seniors are more likely to avoid investing in housing for at least two reasons. First, seniors are relatively more sensitive to their immediate equ...

This paper provides a formal analysis on a well-known issue of the housing market - observable transaction prices are a biased indication of the true market condition if significant numbers of listed properties are delisted without sale. We provide a closed-form formula to identify and correct such pricing bias. The model can help market participan...

This paper develops a formal model to examine the effect of changing market conditions and individuals’ selling constraints on selling price and time-on-market. Using the concept of Relative Liquidity Constraint (RLC)—a stochastic variable that captures the randomness of future individual constraints and market conditions—the study presents the fir...

Choosing the optimal holding period is an important part of real estate investment decisions, because "when to sell" affects "whether to buy". This paper presents a theoretical model for such decision making. Our model indicates that the optimal holding period is affected by both systematic and non-systematic factors--market conditions (illiquidity...

Amendments to the Fair Lending Act have exempted an age restriction on ownership from fair housing prohibitions. This paper studies the economic impact of such ownership restriction on housing values. Using American Housing Survey data, we find that there is a significant premium attached to the restrictive covenant when other factors are controlle...

This study examines the heterogeneous appraiser behavior and its implication on the traditional appraisal smoothing theory. We show that the partial adjustment model is consistent with the traditional appraisal smoothing argument (Geltner 1989) only when all the appraisers choose the same smoothing technique. However, if appraiser behavior is heter...

Direct application of Modern Portfolio Theory (MPT) to the mixed-asset portfolio often suggests that allocation to real estate should be far more than what is practically acceptable. This paper reveals that the puzzling gap is caused by inappropriate application of MPT using only short-term (quarterly or annual) real estate performance measures. Ou...

This paper addresses two major issues with the current practice of real estate investment analysis: applying finance theory without modification and ignoring illiquidity in formal analysis. We develop a new, closed-form ex ante risk metric that quantifies illiquidity risk and integrates it with real estate price risk. Such integration provides a fo...

House prices often exhibit serial correlation and mean reversion. Using two large panel datasets, this paper analyzes the price dynamics in two significantly different types of markets, cyclical (or volatile) and non-cyclical (or tame), by applying an autoregressive mean reversion (ARMR) model. Our results show that cyclical markets have larger AR...

Previous studies have shown that foreclosure often results in vandalism, disinvestment and other negative spillover effects in the neighborhood. This paper extends these views into a formal theoretical model through pricing based on comparables. We project that the spillover effect of a foreclosure on neighborhood property values depends on two fac...

This paper comments on the Weighted Repeated Sales (WRS) method in Case and Shiller (1989). We find that Case-Shiller’s model for step-two of WRS is conceptually mis-specified and empirically inaccurate, which are likely to cause the S&P/Case-Shiller Home Price Indices to be biased for the most critical housing markets (i.e. nine of the ten cities...

This paper re-examines and extends the findings Bond, et al. (2007) who consider the theoretical model of Lin and Vandell (2007) to determine the extent to which individual real estate asset return characteristics caused by marketing period risk disappear in a large, diversified real estate portfolio. The effects of marketing period risk are found...

Thinly-traded assets exhibit illiquidity and do not fit in the efficient market paradigm. Direct application of classical finance theories to illiquid assets simply ignores the illiquidity risk of thinly-traded assets. Using commercial real estate as a testing ground, this paper develops a new, closed-form ex ante risk metric that converts illiquid...

This article develops a theoretical framework and formulates a unified risk metric that integrates both real estate price risk and uncertainty of time on market (TOM). We demonstrate that real estate sellers with different degrees of financial distress face not only different marketing period risks, but also receive different return distributions u...

This article develops a model and provides a closed-form formula to uncover the theoretical relationship between real estate price and time on market (TOM). Our model shows a nonlinear positive price-TOM relationship, and it identifies three economic factors that affect the impact of TOM on sale price. We demonstrate that conventional metrics for r...

For decades, performance comparisons between real estate and financial assets have repeatedly indicated that private real estate investment exhibits significantly higher risk-adjusted returns than publicly traded financial assets such as common stocks. That is, there is an apparent "real estate risk premium puzzle." In this paper, we find that the...

In a thinly traded market where selling is through search and bargaining, illiquidity is characterized by the time required for sale and the uncertainty of the time-on-market. This study develops a model that explicitly quantifies illiquidity risk and provides an integrated risk measure that incorporates the price risk with the uncertainty of time-...

Empirical studies often suggest heavy real estate allocation in mixed-asset portfolios based on the seemingly superior real estate performance than financial assets. We prove that conventional real estate performance measures overstate return and understate risk because they fail to account for the illiquidity risk of real estate. We demonstrate su...

This article addresses the micro-analytic foundations of illiquidity and price dynamics in the real estate market by integrating modern portfolio theory with models describing the real estate transaction process. Based on the notion that real estate is a heterogeneous good that is traded in decentralized markets and that transactions in these marke...

The role of selling (or marketing) period uncertainty in understanding risk associated with property investment is examined in this paper. Using an approach developed by Lin ( 2004 ), and Lin and Vandell ( 2001 , 2005 ), combined with a statistical model of UK commercial property transactions, we show that the ex ante level of risk exposure for a c...

This paper is concerned with the extent to which rehabilitation tax credits affect the conditional probability of commercial real estate rehabilitation. Very little has been written about the rehabilitation tax credit, despite the fact that it has been a feature of the U.S. tax code since 1978. Our analysis suggests that rehabilitation tax credits...

Photocopy. Thesis (Ph.D.)--University of Wisconsin--Madison, 2004. Includes bibliographical references.