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How Much Do Investors Pay for Houses?
Abstract
I combine housing sales from the England and Wales Land Registry with online rental listings from property portal Zoopla to identify buy‐to‐rent transactions—known as buy‐to‐let (BTL) in the UK. These sales are procyclical, concentrated in areas where the housing market is performing well, and more common for small dwellings. Comparing these transactions against all other housing sales in 2009–14 I show that BTL investors pay less than other buyers for the same properties. The heterogeneity of discounts across regions and property types is consistent with a simple theoretical framework that emphasizes the drivers of investors' and homeowners' demand for houses.
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... Alongside the growth of buy-to-let investment from the mid-1990s in the UK, in the wake of the financial crisis, has seen a rapid increase in large institutional investors moving into the private rental market (Beswick et al. 2016). The conjunction of these trends alongside the growing evidence that both buy-to-let and institutional investors can purchase dwellings below the price that owner-occupiers would pay (Allen et al. 2018;Bracke 2019), suggest that this definition will lead to a growing distortion between the figures produced by the HPI and the reality of the market it is meant to capture. ...
... For example, in 1995, the average house price in England is £67,332 in the ODPM but £53,000 in the HPI back-series (non-derived). Potentially reflecting on aggregate the price discount which researchers have shown cash buyers (and 'non-chain') enjoy see Bracke (2019) clarifies the differential trends across regions, with house price growth in London intensifying in the following a recovery from 2008/9 while prices in Yorkshire and other Northern GOR's stagnate. The housing market in the UK is not a single market. ...
This Thesis presents a sociology of the development of land registration in England and examines its relationship to understandings of the housing market, statistics, and elites. Through approaching land registration as an information infrastructure, this research prioritizes the previously overlooked foundations of the housing market, that underpin how it operates and through which it becomes known. To do so, this Thesis combines historical methodologies with computational methods utilising contemporary big data. It seeks to track how land registration in England from its 19th century origins, solidified into an information infrastructure and by utilising this understanding to ask questions of the modern land registration, highlighting these ongoing legacies of elite power, through an analysis of its transactional data. This Thesis is split into three cases. Firstly, an examination of the early land registry, its legal and socio-material organization and standardization, addressing the context of elite aristocratic power in which the system arose. Secondly, an analysis of housing market statistics in the UK, addresses how their relationship to the information infrastructure of land registration has allowed for the exclusion of elite housing practices from official statistics. The third case study, through utilising computational methods, paints a different picture of the UK housing market by adding back in the ‘missing’ houses of contemporary elites, which are owned through offshore shell companies. This research therefore contributes to the study of inequality in the UK through revealing the extent of elite housing wealth held in offshore jurisdictions. Arguing that in order to better identify the relationship between the housing market and elite power the importance of understanding land registration as an information infrastructure underpinning it, cannot be understated.
... Finalmente, como parte de los efectos de estos procesos, se encuentra el avance de la política habitacional subsidiaria, que hoy se enfrenta a una fuerte escasez de terrenos disponibles debido a las alzas de los valores del suelo (Gasic Klett et al., 2022), y el aumento sostenido del déficit habitacional cuantitativo, ligado tanto con las alzas de valores de la vivienda, las barreras de acceso a un crédito hipotecario y los ingresos laborales proporcionalmente menores al valor de la vivienda .El escenario se complejiza ya que, debido a los procesos de financiarización, diversos fondos de inversión, personas jurídicas y personas naturales han optado por invertir en viviendas, siguiendo las dinámicas del buy to let (comprar para arrendar) (Bracke, 2021). En esta práctica, los grupos de mayores ingresos compran viviendas en sectores de menores ingresos para obtener las rentas de los arriendos por dichas viviendas (Vergara-Perucich y Aguirre-Nuñez, 2019). ...
La vivienda importa, no sólo como un garante de los derechos fundamentales de las personas, sino también como un espacio de desarrollo personal, afectivo y de inserción social, junto con el acceso a las diversas redes, oportunidades, bienes y servicios que ofrecen las ciudades. En los últimos años se ha generado una crisis global de acceso a la vivienda, catapultada por las lógicas neoliberales que han convertido a la ciudad en un espacio de especulación, a través de los mercados de vivienda. En el caso chileno, las huellas de la dictadura siguen vigentes, a través de esta lógica de convertir el país de proletarios a propietarios, por medio de la visión de la vivienda como un bien de consumo. En los últimos años, esto se ha visto distorsionado por una nueva lógica de entender la vivienda como un activo financiero y, por lo tanto, convirtiendo a estos propietarios en inversionistas. Este estudio busca analizar los patrones socio espaciales de localización tanto de los conjuntos de viviendas sociales desarrollados entre los años 1974 y 2017, como los proyectos inmobiliarios con fines de inversión desarrollados desde 2010 hasta 2023. Los resultados dan cuenta de las profundas huellas que han dejado estas nuevas dinámicas de propietarios e inversionistas en los territorios de diversas ciudades chilenas y evidencian cómo la vivienda no es sólo un activo de inversión por excelencia, sino también un elemento de consolidación de las desigualdades socio espaciales.
... Residential property is the world's largest asset class (Eichholtz et al., 2021) as many people own at least one home which they live in. However, it is seen as an attractive investment as both private and institutional investors allocate funds into this asset class (Bracke, 2021). The high levels of house price growth globally have been a key driver of this increase in interest (Hoesli, 2020). ...
Value-shifting by means of asset-for-share transactions is prevalent in practice. However, the tax implications triggered by these types of transactions may cause an economic hindrance in the commercial effectiveness and viability of such transactions. The primary purpose of this paper is to critically investigate the differences in the current normal tax treatment of deemed expenditure arising due to value-shifting in terms of asset-for-share transactions. The research conducted is
positioned within the interpretivism paradigm whereby a critical investigation is performed through legal research and a doctrinal analysis. First, the literal approach of interpretation of legislation is employed to highlight the anomaly regarding the differences in the current normal tax treatment of deemed expenditure arising from value-shifting through asset-for-share transactions. To enhance the understanding of the anomaly, two hypothetical cases are used to perform a basic empirical comparative analysis to compare the normal tax treatments in the case where Section 42 roll-over relief in terms of the Income Tax Act (58 of 1962) does not apply, as opposed to the case where it is applicable. Thereafter, the purposive approach to legislative interpretation is applied to determine if the literal interpretation matches the true intention of the legislator. The investigation shows that an anomaly does exist in terms of the different normal tax treatments that results in a double tax position. The latter double tax position is questioned in terms of its equitability (fairness), certainty (transparency) and constitutionality by evaluating it against the principles of good tax policy and by considering the constitutional rights of the South African taxpayer. The paper concludes by suggesting recommendations that could possibly address and rectify the highlighted anomaly.
... Desde los años setenta existe una importante preocupación gubernamental sobre problemas asociados a la segregación urbana y la exclusión que decantan en procesos de gentrificación. Un enfoque de análisis más reciente sobre gentrificación se asocia al estudio específico del fenómeno que en inglés se ha catalogado como buy-to-let (Bracke, 2021) o investification (Hulse & Reynolds, 2018). Sin ser lo mismo, los procesos de "investificación" pueden conducir a procesos de gentrificación. ...
Este artículo plantea como pregunta de investigación cuáles son las características sociológicas de las personas que compran vivienda para arrendar en Chile. El objetivo general es contribuir a la caracterización de este grupo social con el fin de reconocer sus potenciales motivaciones e informar el desarrollo de políticas públicas que permitan identificar las virtudes y problemas de estos procesos. A la vez, como resultado, se revisa si los hogares cercanos a donde se ubican estos proyectos de inversión para arriendo tienen el poder de compra para adquirir dichas viviendas, y se desarrolla una cartografía que permite visualizar la localización de estas personas en relación a donde se realizan las inversiones, presentando que el emergente marco teórico de la “investificación” es aplicable para el caso chileno. Ante el importante aumento de acumuladores de vivienda en un 20% entre 2015 y 2020, se plantea que la política habitacional debe profundizar su diagnóstico en materia de arriendo, integrando en su diseño las complejidades locales y dinámicas a escala de barrio que se generan a partir de la “investificación” y buscar estrategias eficaces para reducir el impacto social de este fenómeno
... In the capital area, cluster 1 contains the firsttime buyers, and cluster 5 consists the participants-by-demand. The calibrated parameter values for clusters 1 and 5 is higher than that for cluster 3 and 7, and this calibration result coincides with the empirical study of [10]. The cluster 3 has a relatively lower Willingnessto-Pay value, because they have already purchased a house for their residential purposes. ...
Simulation has been applied to diverse domains such as urban growth modeling and market dynamics modeling. Some of these applications may require validations, based on some real-world observations modeled in the simulation. This validation can be conducted as either qualitative face-validation or quantitative empirical validation; however, as the importance and accumulation of data grows, the importance of quantitative validation has been highlighted in recent studies. The key component of quantitative validation is finding a calibrated set of parameters to regenerate the real-world observations in the simulation models. While the parameter of interest to be calibrated has hitherto been fixed throughout simulation executions, we expand the static parameter calibration in two dimensions in this study, dynamically and heterogeneously. The dynamic calibration changes the parameter values over the simulation period by reflecting the simulation output trend, and the heterogeneous calibration changes the parameter values per simulated entity clusters by considering the similarities of the entity states. We experimented with the proposed calibrations on a hypothetical case and a real-world case. For the hypothetical scenario, we used the wealth distribution model to illustrate how our calibration works. For the real-world scenario, we selected the real estate market model. The models were selected, because of two reasons. First, they have heterogeneous entities, being agent-based models. Second, they are agent-based models exhibiting real-world trends over time.
... Since then, however, housing markets all over the world have been booming, and so has investor interest. Both private and institutional investors are putting capital into rental housing (Bracke, 2019;Mills et al., 2019). No doubt, their interest has been spurred by the recent performance of housing markets, with high levels of house price growth observed across the globe in the past few decades (Knoll et al., 2017). ...
This paper aims to determine the total rate of return to residential real estate. It employs hand-collected archival data for Paris (1809–1942) and Amsterdam (1900– 1979), combining microdata on rents, transaction prices and assessed values for the same homes, as well as information about taxes and costs. In all, we collected 131,711 observations of rents, prices or taxes, covering 26,211 properties. We find real total returns to housing, net of costs and taxes, of 4.9 percent per year for Paris and 5.3 percent for Amsterdam. Importantly, our annual returns correlate only weakly with the housing returns estimated in Jordà et al. (2019), and result in 35 percent lower Sharpe ratios than previously suggested. When housing returns are measured correctly – quality-adjusted, with actual yields observed from rents and prices for the same assets property-level, and property-level taxes and costs included – it seems that much evidence of a housing risk premium puzzle disappears.
... Our empirical work thus provides a broader and more detailed investigation of the listing and searching behaviors of different types of housing sellers. These findings, in particular the price premium of consumer sellers', contradicts the conventional wisdom that investors sellers are better equipped with professional skills (Bracke, 2019 (Arnold, 1999;Wheaton, 1990). In this paper, we look beyond a single event and consider chained transactions, which are very common practices in the Chinese housing market but largely ignored in the literature. ...
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 parallel for upsizing their houses through moving to a better location or trading for a larger property). The consumer sellers differ from investor sellers, who sell for cashing out capital gains, in selling strategies due to their liquidity constraints and higher search costs in the chained transactions. Our empirical analyses reveal that, for successful transactions, consumer sellers list and sell their properties at higher prices than investor sellers, all else being equal; however, the price premiums are achieved without longer time-on-market due to their strategy of searching more intensively. This paper provides additional insights on how real estate sellers’ credit constraints and opportunity costs of searching govern the selling strategies and transaction outcomes of property trading.
... Hansz and Hayunga (2016) focus on the purchase price negotiated by investors (without controlling for the demand effect) and find that investors pay roughly 10 % less compared to individuals purchasing at the same time and that the discount is larger for larger investors. Mills et al. (2019), like Bracke (2015), focuses on large firms that purchase homes with the intention of creating a portfolio of rental properties and generating a stream of rental income ("buy-to-rent"), and contrast those investors with investors assumingly more focused on short term price appreciation (which might be called "flippers"). The authors document several differences between the behavior of large buy-to-rent firms, other corporate investors and individual investors that are relevant to our work. ...
We study the bargaining power of investors and the contagion effects of investor-owned single family homes on nearby property values. By controlling for the characteristics of both buyers and sellers, we find that investors tend to have more bargaining power than owner-occupiers — they purchase at lower prices and sell at higher prices, all else equal. We identify two types of investors: Professional Investors (e.g., corporations and partnerships) and Individual Investors. We find differences in the behavior of these two types of investors. For example, Individual Investors tend to invest in homes similar in terms of unobserved quality to those purchased by owner- occupiers. The tendency to buy lower quality homes is primarily attributable to Professional Investors. We also find that Professional Investors have more bargaining power than Individual Investors. For the contagion analysis, we use a repeat sales methodology and find that increasing ownership by investors in a neighborhood is associated with a small positive effect on nearby property values.
... It is also worth noting two other studies that involved investor buyers.Gay (2015) examines the impact of real estate investors on housing affordability in the local market and finds a negative impact.Bracke (2016) studies purchases of buy-to-rent buyers and finds that they pay less than other buyers for equivalent properties. 4 There is some possible ambiguity regarding the classification of small investors. We define small investor as 2 purchases or 1 purchase by a LLC, LP, etc. It is possible that some of these LLCs or LPs are individual buyers ...
We examine a recent trend in the market where investors purchase residential properties. We find that investors purchase at a discount of 9.5% compared to individuals purchasing in the same time period and geographic area. More specifically, we find that small investors purchase at a discount of 8.0%, medium investors purchase at a discount of 11.1%, large investors purchase at a discount of 13.6%, and institutional investors purchase at a discount of 7.7%. We also find that the presence of investor buyers in a market helps improve house values. A 10% increase in the percentage of houses purchased by investors in a census block leads to a 0.20% increase in house prices.
Taking advantage of the standard regulation of real estate investment trusts (REITs) around the world, we study the implications for housing markets of the entry of institutional investors in 57 cities in 15 countries for the period 2001–2022. We employ an IV approach based on the exogenous demand for REITs by pension funds triggered by changes to the retired population. We show that residential equity REIT capital flows push up multifamily house prices, and are associated with declining rents, potentially affecting households' homeownership versus renting decisions. Estimating a CS‐ECM model, we find that REITs exert long‐run effects on housing markets.
This article conducts a comprehensive analysis of the potential returns from investing in residential real property, with a special interest in any added gains due to trading larger volumes. Since the literature suggests that they are at a bargaining disadvantage, one notable finding is that individuals earn price benefits like so-called professional investors. Upon controlling for myriad well-known bargaining channels as well as investors’ demand characteristics, we find the mean price gains due to bargaining for individuals range from 4.2% for the lower volume investors (3–4 homes) to more than 7% for the highest volume traders (13 + properties). These average returns are for both buyers and sellers. Professionals exhibit bargaining acumen beginning with their first transactions (6.4%) and garner returns like individuals at higher volume levels (7.3%). The finding of investors’ bargaining effects generally increasing with greater volume implies gains in asymmetric information possibly through learning and/or reduced search costs.
We examine matched rent-price ratios and rent transaction prices for single-family houses in Miami-Dade County between January 2009 and April 2014. The primary dataset consists of properties that are purchased and then rented within 240 days of the purchase. Each of the buyers in the sample are considered investors since each property included has a rental event indicating they are not owner occupied. We examine the relationship between housing and market characteristics and the impact active investors have on single-family rents and rent-price ratios. Entities that purchase the largest number of units pay more for properties, obtain marginally higher rent and obtain lower rent-to-price ratios.
This study investigates whether flipping activities impose an externality on the transaction prices of the neighboring non‐flipped properties. Using a dataset of residential property transactions in Clark County, Nevada for the period 2003–2013, we find that flippers impose a significant positive impact on the price of neighboring non‐flipped properties in an up market, but a significant negative effect in a down market. This pro‐cyclical impact of flipping activity contributes to the volatility of housing prices, hence magnifying boom and bust cycles and increasing the likelihood of a mortgage crisis. This article is protected by copyright. All rights reserved
In segmented markets for heterogeneous goods, prices reflect a mixture of demand for characteristics, bargaining power and market segmentation. This paper integrates bargaining into the search model to investigate bargaining for housing across investors and owner‐occupiers when the investment housing segment is also subject to a rental property discount. It provides a framework for empirically identifying separate price effects of property type and bargaining power. We exploit homestead exemption information to empirically identify sellers and buyers as investors or owner‐occupiers. Data from Orange County, Florida, over 2000–2012, show a greater rental discount when controlling for investor bargaining power than when estimated in the conventional manner. In addition, investor relative bargaining power is not the same when selling to an owner‐occupier as when buying from an owner‐occupier. The results are robust across market phases and across neighborhoods. This article is protected by copyright. All rights reserved
Do investors reach for yield when interest rates are low and does this behavior affect the housing market? Using the unique setting and data of 18th-century Amsterdam, I show that reach-for-yield behavior of wealthy investors resulted in a large boom and bust in house prices and major changes in rental yields. Exploiting changes in the supply of bonds, I show that investors living off capital income shifted their portfolios towards real estate and other higher-yielding assets when bond yields were low and decreasing. This behavior exacerbated house price volatility and in- creased housing wealth inequality.
Which housing characteristics are important for understanding homeownership rates? How are housing characteristics priced in rental and owner‐occupied markets? What can answers to these questions tell us about economic theories of homeownership? Using the English Housing Survey, we estimate a selection model of property allocations to the owner‐occupied and rental sectors. Structural characteristics and unobserved quality are important for selection. Location is not. Accounting for selection is important for rent‐to‐price ratio estimates and explains some puzzling correlations between rent‐to‐price ratios and homeownership rates. These patterns are consistent with, among others, hypotheses of rental market contracting frictions related to housing maintenance.
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Identifying the effects of “flights to safety” on asset prices using pure time-series methods is difficult because crises are infrequent. We develop a new cross-sectional identification approach, motivated by the insight that investors may differ in their “preferred habitats” within a broad asset class. We apply the method to the question of whether foreign capital is responsible for residential real estate price movements in global cities such as London and New York, especially during crises. Using large data sets of housing transactions, we find that foreign risk strongly affects London house prices. The effects are long-lasting, and are associated with both safe-haven effects and immigration.
We examine a recent trend in the market where investors purchase residential properties. We find that investors purchase at a discount of 9.5% compared to individuals purchasing in the same time period and geographic area. More specifically, we find that small investors purchase at a discount of 8.0%, medium investors purchase at a discount of 11.1%, large investors purchase at a discount of 13.6%, and institutional investors purchase at a discount of 7.7%. We also find that the presence of investor buyers in a market helps improve house values. A 10% increase in the percentage of houses purchased by investors in a census block leads to a 0.20% increase in house prices.
We estimate the effect of the UK Stamp Duty Land Tax (SDLT) – a transfer tax on the purchase price of property or land – on different types of household mobility using micro data. Exploiting a discontinuity in the tax schedule, we isolate the impact of the tax from other determinants of mobility. We compare homeowners with self-assessed house values on either sides of a cut-off value where the tax rate jumps from 1 to 3 percent. We find that a higher SDLT has a strong negative impact on housing-related and short distance moves but does not adversely affect job-induced or long distance mobility. Overall, our results suggest that transfer taxes may mainly distort housing rather than labor markets.
Most London housing transactions involve trading long leases of varying lengths. We exploit this to estimate the time value of housing―the relationship between the price of a property and the term of ownership―over a hundred years and derive implied discount rates. For our empirical analysis, we compile a unique historical dataset (1987 to 1992) to abstract from the right to extend leases currently enjoyed by tenants. Across a variety of specifications and samples we find that leasehold prices are consistent with a time declining schedule and low long-term discount rates in housing markets. This article is protected by copyright. All rights reserved.
We model the provision of owner-occupied versus rental houses as a competitive search economy where households have private information over their expected duration. With public information, households with low vacancy hazard rates pay lower rents and search in thicker rental markets. With private information, rentals are under-provided to long-duration house-holds to discourage short-duration households from searching there. Ownership is attractive in part because it cures the private information problem. Using a novel data set of rental listings, the data show that homeownership rates are high where rent-to-price ratios are low but rentals are scarce and that long-duration households sort into scarce rental markets, consistent with our private information problem.
In contrast to corporate and institutional investors, single owner-occupiers cannot adequately diversify housing investment risk. Consequently, homeownership should be relatively less likely in places with higher housing investment risk. Using the American Housing Survey, it is documented that neighborhood externality risk, a major component of housing investment risk, substantially reduces the probability that a housing unit is owner-occupied, even when controlling for housing type and numerous location and household specific characteristics. The effects are quantitatively meaningful and change-in-change estimates suggest that the effects are causal.
In the U.K., every year during the second and third quarters (the “hot season”), regional
housing markets experience sharp above-trend increases in (quality-adjusted) prices and in
the number of transactions. During the fourth and first quarters (the “cold season”), housing
prices and the number of transactions fall below trend. A similar seasonal cycle for transactions
is observed in other developed countries. Housing prices, however, do not necessarily
follow a seasonal pattern in all of them; in particular, in the U.S., while transactions are
highly seasonal, prices display no seasonality. We discuss why the traditional asset-pricing
approach to the housing market fails at explaining seasonal booms and busts and present
a search model that can quantitatively mimic the seasonal fluctuations in transactions and
prices in both the U.K. and the U.S. The model features a “thick-market” externality that
can generate substantial differences in the number of transactions across seasons. The existence
and extent of seasonality in prices depend on the distribution of market power between
buyers and sellers. As a by-product, the model sheds new light on the mechanisms governing
fluctuations in housing markets and it can be adapted to study lower-frequency movements.
Discussions of whether a housing bubble exists generally rely on indirect barometers such as rapidly increasing prices, unrealistic expectations of future price increases, and rising ratios of housing price indexes to indexes of household income. Such measures cannot, however, answer the key question of whether housing prices are justified by the value of the services that a home provides. We show how to estimate the fundamental value of a home from rent data. We then apply this procedure in ten metropolitan areas, using a unique set of rent and sale price data for matched single-family homes. We do not find evidence of a bubble in most of these cities: under a variety of plausible assumptions, buying a home in these cities today still appears to be an attractive long-term investment.
Using data from the Los Angeles area from 1988 to 2012, we study the behavior and sources of returns of individual investors in the housing market. We document the existence of two distinct investor types. The first act as middlemen, purchasing substantially below and reselling above market prices throughout the cycle, improving liquidity and the existing capital stock in the process. The second act as speculators, who primarily enter during the boom, buying and selling at essentially market prices. Neither type anticipated the housing bust. We document similar behavior by speculators and middlemen in 96 other U.S. metro areas.
We discuss recent purchase activity by business investors in the market for single-family homes and consider the possible benefits and risks of this activity.
We investigate housing market responses to transaction taxes using administrative data on all property transactions in the U.K. from 2004 to 2012 combined with quasi-experimental variation from tax notches and tax stimulus. We present two main findings. First, transaction taxes are highly distortionary across a range of margins, causing large distortions to the price, volume, and timing of property transactions. Secondly, temporary transaction tax cuts are an enormously effective form of fiscal stimulus.Atemporary elimination of a 1% transaction tax increased housing market activity by 20% in the short run (due to both timing and extensive responses) and less than half of the stimulus effect was reversed after the tax was reintroduced (due to re-timing). Because of the complementarities between moving house and consumer spending, these stimulus effects translate into extra spending per dollar of tax cut equal to about 1. We interpret our empirical findings in the context of a housing model with downpayment constraints in which leverage amplifies the effects of transaction taxes.
In 2012, several large firms began purchasing single-family homes, creating large portfolios of rental property, and securitizing these investments in capital markets. We present the first systematic evidence on this new investor activity in order to shed light on the factors that have supported its emergence. Three key factors were the ample supply of property for sale, tight mortgage financing and a decrease in acquisition and managerial costs brought about by technological advances. In addition, we show that buy-to-rent investors appear to have supported house prices in the neighborhoods where they concentrated.
This paper examines the contribution of out-of-town second-house buyers to mispricing in the housing market. We show that
demand from out-of-town second-house buyers during the mid 2000s predicted not only house-price appreciation rates but also
implied-to-actual-rent-ratio appreciation rates, a proxy for mispricing. We then apply a novel identification strategy to
address the issue of reverse causality. We give supporting evidence that out-of-town second-house buyers behaved like misinformed
speculators, earning lower capital gains (misinformed) and consuming smaller dividends (speculators).
Received August 4, 2014; accepted August 28, 2015 by Editor Stefan Nagel.
In 2012, several large firms began purchasing single-family homes with the stated intention of creating large portfolios of rental property. We present the first systematic evidence on how this new investor activity differs from that of other investors in the housing market. Many aspects of buy-to-rent investor behavior are consistent with holding property for rent rather than reselling quickly. Additionally, the large size of these investors imparts a few important advantages. In the short run, this investment activity appears to have supported house prices in the areas where it is concentrated. The longer-run impacts remain to be seen.
There is a basic correlation between housing tenure and structure. The 2009 American Housing Survey reports that 87% of single-family housing in the U.S. is owner-occupied while 86% of units in multi-family structures are rented. This correlation has been subject to only sparse analysis. To examine this structure-tenure correlation more carefully we ask a more fundamental question: what characteristics of residential buildings make them more likely to be owner-occupied? We examine three hypotheses. First, we consider free-rider issues in the governance of multi-unit buildings. We show that the appropriate measure of building ownership --the rate of condominium ownership --is increasing with the size of buildings, contradicting to a degree the free-rider hypothesis. Second, we considered the interaction between the demand for unit quality by homeowners and the fact that unit quality is typically lower in multi-unit buildings. Unit sizes, and other proxies for unit quality, are overwhelming influential in predicting both building ownership and unit tenure, regardless of structure type. Finally, we consider the risk accrued by owner-occupiers in different structure types. Following previous literature, we use data from the Panel Study of Income Dynamics but are unable to show that returns to multi-unit housing are more volatile than for single family housing, in part due to data limitations. The strongest evidence is in favor of the quality hypothesis. (JEL Code: R31) Acknowledgements: We are grateful for help and suggestions from Tom Davidoff, Christian Hilber, Roger Brown, Lauren Lambie-Hanson and participants at presentations at the 2011 Regional Science Association and the University of North Carolina. We also appreciate the use of data from MLS PIN in Massachusetts. Data are provided to MLS PIN by participants and subscribers and are published in the Service verbatim, as provided. MLS PIN has no responsibility or liability for the accuracy or completeness of any of the data.
Purpose
– This paper aims to examine how the exogenous shock of the global financial crisis has had a differential impact on the housing markets of the USA and UK.
Design/methodology/approach
– The paper begins by examining the nature and dynamics of the global financial crisis. It presents a detailed comparison of institutional and housing market characteristics in each country. A particular focus is the differences in mortgage funding and subprime lending trends over the decade leading up to the financial crisis.
Findings
– The analysis demonstrates the distinctiveness of the recent housing cycles and the geography of the downward price adjustments. Relative unemployment rates play a key role in these outcomes. Despite the different dynamics of the boom and bust, there is a common legacy in terms of the collapse of house building, repossessions/foreclosures and falling home ownership rates. The short-term policy responses by both governments addressed the same target issues in alternative ways but with different outcomes. Longer-term solutions are still being debated in both countries.
Originality/value
– Innovatory insights are provided by the comparison of the sub-national spatial pattern of the recent house price cycle in two countries.
I analyze a real estate agency's proprietary dataset containing tens of thousands of housing sale and rental transactions in Central London during the 2006–2012 period. I isolate 1,922 properties that were both sold and rented out within six months and measure their rent-price ratios. I find that rent-price ratios are lower for bigger and more central units. These stylized facts are consistent with the user cost formula and reflect differences in maintenance costs, vacancy rates, growth expectations and risk premia.
This paper presents new empirical evidence that internal movement - selling one home and buying another - by existing homeowners within a metropolitan housing market is especially volatile and the main driver of fluctuations in transaction volume over the housing market cycle. We develop a dynamic search equilibrium model that shows that the strong pro-cyclicality of internal movement is driven by the cost of simultaneously holding two homes, which varies endogenously over the cycle. We estimate the model using data on prices, volume, time-on-market, and internal moves drawn from Los Angeles from 1988-2008 and use the fitted model to show that frictions related to the joint buyer-seller problem: (i) substantially amplify booms and busts in the housing market, (ii) create counter-cyclical build-ups of mismatch of existing owners with their homes, and (iii) generate externalities that induce significant welfare loss and excess price volatility.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
We use new data from a rental brokers' multiple listings service to examine the contractual agreements between landlords and brokers. The data display two sources of variation in the way in which agents are compensated: 1) 69 percent of listings involve exclusive relationships between landlords and agents (the other 31 percent are non-exclusive); and 2) in 23 percent of listings, landlords commit to pay the agent's fee (in the other 77 percent, the agent collects the fee from the tenant). We show that contracts vary according to apartment characteristics and market conditions. Specifically, landlords are more likely to sign exclusive agreements with agents for more-atypical apartments and are more likely to pay brokers' fees when apartments are in rent-stabilized buildings and when local vacancy rates are higher.
Using a novel dataset which merges real estate listings with real estate transactions in San Francisco from 2007-2009, we present new evidence that foreclosures causally depress nearby home prices. We show that this decrease occurs only after the foreclosed home is listed for sale, which suggests that the effect is due to the additional housing supply created by foreclosure rather than from neglect of the foreclosed property. Consistent with a framework where a foreclosed home simply increases supply, we find that new listings of foreclosed homes and non-foreclosed homes each lower sales prices of homes within 0.1 miles of the listing by 1 percent.
We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the share of purchases, and subsequently delinquencies, by real estate investors. In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. Our findings have important implications for policies designed to address the consequences and recurrence of housing market bubbles.
The home mortgage interest deduction creates incentives to buy more housing and to become a homeowner, and the case for the deduction rests on social benefits from housing consumption and homeownership. There is little evidence suggesting large externalities from the level of housing consumption, but there appear to be externalities from homeownership. Externalities from living around homeowners are far too small to justify the deduction. Externalities from home ownership are larger, but the home mortgage interest deduction is a particularly poor instrument for encouraging homeownership because it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time series, which shows that the ownership subsidy moves with inflation and has changed significantly between 1965 and today, but the homeownership rate has been essentially constant.
A model of the single-family housing market is proposed in which households that move are both buyers and sellers. Households move when a stochastic process leaves them dissatisifed with their current unit. Household buyers expend costly search effort to find a better house, while sellers hold two units until a buyer is found. The vacancy rate, fixed in the short run, determines the expected length of sale and search, which play a central role in the reservation prices of buyer and seller. Market prices, the result of bargaining, lie between these two. The model yields a strong theoretical relationship (inverse) between vacancy and prices, which with competitive supply explains the existence of longer-run "structural" vacancy. Copyright 1990 by University of Chicago Press.
The conventional wisdom that homeownership is very risky ignores the fact that the alternative, renting, is also risky. Owning a house provides a hedge against fluctuations in housing costs, but in turn introduces asset price risk. In a simple model of tenure choice with endogenous house prices, we show that the net risk of owning declines with a household's expected horizon in its house and with the correlation in housing costs in future locations. Empirically, we find that both house prices, relative to rents, and the probability of homeownership increase with net rent risk. © 2005 MIT Press
In corporate finance and asset pricing empirical work, researchers are often confronted with panel data. In these data sets, the residuals may be correlated across firms or across time, and OLS standard errors can be biased. Historically, researchers in the two literatures have used different solutions to this problem. This paper examines the different methods used in the literature and explains when the different methods yield the same (and correct) standard errors and when they diverge. The intent is to provide intuition as to why the different approaches sometimes give different answers and give researchers guidance for their use. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.
The marketing of unique durable goods such as housing presents a good example for the application of search theory. An optimal stopping rule strategy is employed to model sellers' behavior. The primary hypothesis is that the greater the atypicality of a house, the greater the expected variance of offers. Because a maximizing seller will wish to entertain more offers the greater is the variance, the marketing time of atypical houses will be relatively longer than that of standard houses. Using a sample of resale houses, the empirical study uses a failure time model to confirm the hypothesis. Extensions are mentioned, including discussions of the role of the list price and the limitations of the standard hedonic regression approach when applied to housing. Copyright American Real Estate and Urban Economics Association.
We construct a model of the housing market in which agents differ in their flow values while searching. Agents enter the market relaxed (with high flow values) but move to a desperate state (low flow values) at a Poisson rate if they have not already transacted. We characterize the equilibrium steady-state matching pattern and the joint distribution of price and time to sale (for sellers). The expected price conditional on time to sale falls with time spent on the market, whereas the conditional variance of price first rises and then falls with time on the market. Copyright 2007 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
This paper examines the process by which owner-occupied housing market transactions take place. The objective is to develop a model which can reproduce the slow build-up of housing chains of connected owner-occupier sales and purchases. The approach here applies stringent discontinuous preferences over house type and location to develop a computer model which will produce these housing chains. The process derived demonstrates that existing owner-occupiers spend longer in housing market search than will first-time buyers or the sellers of new dwellings. The implication that existing owner-occupiers 'lag' in the housing market is tested on U.K. housing price data, with results that clearly support this general hypothesis. Copyright 1997 by Royal Economic Society.
Attempts to define the determinants of tenure choice in the housing market. Two basic approaches are identified - the first looks at factors affecting the choice of a single consumer, and the second is to solve for theoretical market equilibrium, dividing everyone into renters or owners. Analyzes the economic differences between renting and owning, and identifies unattractive externalities associated with the former, and investment assets of the latter. Finally, examines tax impacts on choice and shows variations in housing consumption with capital market imperfections.-L.Martin
Very Long‐Run Discount Rates
- Giglio S.
How Wall Street Investors Rescued the Market for Single Family Homes
- W Andp D'lima
- Schultz
V.derKlaauw.2014.Real Estate Investors and the Housing Market Crisis
- A D Haughwout
- J Lee
- Tracyandw
Tax Policy and the Economy
- E.L. Glaeser
- J.M. Shapiro