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Education and Homeownership

Paper Session

Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM

Loews Philadelphia, Washington C
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Stephen Ross, University of Connecticut

School Quality, Latent Demand, and Bidding Wars for Houses

Patrick Smith
,
San Diego State University
Crocker Liu
,
Cornell University

Abstract

This paper uses a natural experiment in which public school attendance boundaries are rezoned to provide new evidence of the causal effect that school quality has on the demand for housing. A simple theoretical model predicts that the demand for a property will increase when the property is rezoned into a higher quality school zone. We use school quality as a proxy for demand as households with children naturally want their kids to go to the best school possible. We posit that the limited supply of housing within high quality school zones creates latent demand for housing within those zones. Evidence from Atlanta supports the model.

Wage Trickle Down vs. Rent Trickle Down: How Does Increase in College Graduates Affect Wages and Rents?

Jung Choi
,
University of Southern California
Richard Green
,
University of Southern California
Eul Noh
,
University of California-San Diego

Abstract

This study examines how the changing composition of adult educational attainment in cities affects distribution of wages and rents in those cities. We extend the Rosen-Roback spatial equilibrium model to show that as the share of college graduates increases, the impact of the change on the overall welfare of skilled and unskilled workers varies, particularly when individuals have different locational preferences and housing supply takes time to adjust to changing demand. Using the PSID from 1980 to 2013, we find that college graduates gain higher wage premiums from increasing college graduates than those who received less education. These results hold even after controlling for unobserved characteristics of individuals and cities. Rental prices also increase in cities that experience growth in the share of college graduates. On average, the increase in the rent cost offsets the earnings increases, and thus the residual earnings does not change in cities with greater influxes of high skilled workers. However, the gains and losses differ across individuals with different levels of education. For college graduates, we find that the increase in earnings benefits is greater than the increase in rental cost in cities with growing shares of college graduates. For those without college degrees, rental cost increases outweigh the increase in earnings in these cities. This suggests that less skilled workers can become worse off in cities that attract college graduates, especially in the short run.

Model-Free Estimation of the Hedonic Price for Housing Space

Jing Li
,
Singapore Management University
Sumit Agarwal
,
National University of Singapore
Yanying Chen
,
Singapore Management University
Yi Jin Tan
,
Singapore Management University

Abstract

This paper conducts a model-free estimation of heterogeneous hedonic prices associated with different levels of housing space, by exploiting a unique space-adding project in Singapore that added a uniform amount of 6m2 of space to each existing housing unit regardless of the original size of the unit. This space adding was part of a large scale urban renewal and housing upgrading policy in Singapore, and was carried out only if sufficient residents within a highrise building vote in favour of space adding. Using a difference-in-differences strategy after restricting our sample to narrow margins around the voting cut-off, we find that the additional space increased the resale price of a housing unit by 7% on average, and the extent of price appreciation varied significantly across the original size of the units. The policy feature of adding a uniform amount of space, regardless of the original size of the housing unit, also allows us to flexibly trace out a concave hedonic price function of housing space. We find that total house price appreciation can be attributed to the combined effect of a change in housing space together with a different level of average price for per unit housing space.

Do Local Governments Tax Homeowner Communities Differently?

Roland Fuss
,
University of St. Gallen
Oliver Lerbs
,
Centre For European Economic Research

Abstract

This paper investigates whether and how strongly the share of homeowners in a community affects residential property taxation by local governments. Different from renters, homeowners bear the full property tax burden irrespective of local market conditions, and the tax is more salient to them. “Homeowner communities” may hence oppose high property taxes in order to protect their housing wealth. Using granular spatial data from a complete housing inventory in the 2011 German Census and historical war damages as a source of exogenous variation in local homeownership, we provide empirical evidence that otherwise identical jurisdictions charge significantly lower property taxes when the share of homeowners in their population is higher. This result appears to be independent of local market conditions, which suggests tax salience as the key mechanism for this effect. We find strong positive spatial dependence in tax multipliers, indicative of property tax mimicking by local governments.
Discussant(s)
Elliot Anenberg
,
Federal Reserve Board
Rebecca Diamond
,
Stanford University
Maisy Wong
,
University of Pennsylvania
Eric Brunner
,
University of Connecticut
JEL Classifications
  • R2 - Household Analysis
  • D0 - General