Housing and Urban Development HOUSING MARKETS
Supply and Demand A “Typical” Good Static Model Equilibrium Price: where supply and demand curves cross Increase in demand: demand curve moves out = higher demand higher price Increase in supply: supply curve moves out=higher supply and lower price
Housing Characteristics l Heterogeneity l Immobility l Durability l Large expense to income l High adjustment costs
Housing Supply & Demand l Difficult to know how much housing is consumed or produced l Tenure: Own vs. rent l Equilibrium price is not so clear as the typical good
Housing Demand: demand price are related Hedonic Price Analysis A formula that allows estimation of price—the formula is a function of various attributes of the house e. g. , number of rooms, square footage, existence of garage, neighborhood, etc.
Hedonic Model l Sales Price (To be predicted) Sales Price of the house l Neighborhood Characteristics – Percentage of boarded up units – Crime – Median HH Income
• Housing Unit Characteristics -Age -Bathrooms -Bedrooms -Central Heat -Air Conditioning -Attached Garage -Physical Condition -Lot Size
Ownership: Costs & Benefits Costs Benefits Mortgage interest l Property tax l Maintenance l Capital Gains l l Mortgage interest deduction l Imputed rent tax savings
Housing Supply l Existing Stock -Add about 2% to the stock annually, on average (3% added – 1% removed)
Equilibrium and Finite Supply What happens when a housing market reaches build out (no more land to build)?
Housing Sub Markets Filtering The movement of a housing unit up or down the quality spectrum
Policy Implications of Filtering Analysis • Short term benefits will vary depending on particular markets • One time infusion of supply may reduce rents over the long term but not necessarily
Policy Implications (cont’d) • Massive continual construction will reduce rents indefinitely, but with abandonment and accelerated downgrading • The benefits of new construction for households in lower submarkets are strongest when the new construction occurs in a submarket closer to the lower submarkets, not very high quality sub market i. e. , expensive/luxury housing is unlikely to filter down.
Real Estate Basics Real estate ownership as a bundle of rights
Fee Simple Bundle of Rights An owner can occupy and use the property, grant easements, mortgage the property, etc.
Easement The right or privilege one party has to use land belonging to another for a special purpose not inconsistent with the owner’s use of the land (Harwood, 1986, p. 41)
Eminent Domain The right of government to take privately held land for public use provided fair compensation is paid (Harwood, 1986, p. 41)
Land Assembly Gaining development control over a number of adjacent land parcels for the purposes of a specific project
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