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Housing Price Dynamics 1

Paper Session

Friday, Jan. 3, 2025 8:00 AM - 10:00 AM (PST)

San Francisco Marriott Marquis
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Lily Shen, Clemson University

The Value of Diversity: Evidence from the Housing Market

Rachel Choi
,
University of Birmingham
Hisham Farag
,
University of Birmingham
Christoph Gortz
,
University of Augsburg
Danny McGowan
,
Durham University
Huyen Nguyen
,
IWH Halle

Abstract

Are there economic benefits or costs to living in a diverse neighborhood? We estimate how religious diversity influences contemporary house prices in Northern Ireland using hand-collected data, and plausibly exogenous variation deriving from British settlement patterns during the Plantation of Ulster during the early 1600s. A standard deviation increase in diversity raises the average property's sales price by approximately £7,500. We obtain similar evidence for rental markets. A novel result is that diversity transmits to real asset prices by increasing market liquidity and demand. In essence, properties in segregated neighborhoods appeal only to people similar to existing residents, whereas the number of potential buyers in diverse areas is much larger. Moreover, diversity in a neighborhood is strongly persistent. Contrary to dynamic residential sorting models' predictions, we find using almost 400 years of data, and despite agents having strong homophilic preferences, that diverse ex-ante residential equilibria are remarkably stable.

Who Values Neighborhood Diversity? Buyer Ethnicity and the Demand for Neighborhood Diversity

Natalya Bikmetova
,
Hofstra University
Geoffrey K. Turnbull
,
University of Central Florida
Velma Zahirovic-Herbert
,
University of Memphis

Abstract

Who values neighborhood diversity? This paper examines the relationship between buyer ethnicity, as revealed by their names, and what they pay to own houses in more ethnically diverse neighborhoods. It provides several contributions to the literature. It evaluates the most appropriate diversity measure out from among a set of reasonable alternatives motivated by prior studies. Using this measure, the empirical approach employs a simultaneous hedonic price and liquidity model of the two dimensions of equilibria in search markets to identify the extent to which diversity is capitalized into both price and ease of sale. We find ethnic clientele effects for neighborhood diversity per se as well as evidence of cultural connections between ethnic sellers and buyers. Nonetheless, houses in more diverse neighborhoods sell at a discount even when the buyer-seller ethnic mix is considered. Both buyer ethnicity and the cultural connection between sellers and buyers appear to matter, as they each modify the diversity discount paid by ethnic buyers.

The Effect of Local Stock Market Participation on Local Housing Prices

Casey Dougal
,
Florida State University
Rodney Ndum
,
Florida State University

Abstract

Leveraging geographical variation in stock market participation, our study establishes a negative causal link between aggregate stock returns and local residential property prices. Areas with higher market participation display reduced average housing prices after a positive aggregate equity market return. This finding exists across US counties and globally. This relationship emerges from a financial friction: post a bullish equity market, areas with higher market participation experience an increase in cash-only home purchases, which are discounted by an average of 11% (Reher and Valkanov, 2022) compared to mortgage-financed transactions, thus driving down local average home prices.

Icing on the Cake? The Case for the Top-Floor Units as a Status Good and an Investment

Charles Leung
,
City University of Hong Kong
Edward Tang
,
Hong Kong Shue Yan University

Abstract

Located at the top of condominium buildings, "top floor units" (TFU) offer exceptional views and privacy through the accessible roofs. This paper studies this status good empirically and finds that (1) TFU interacts with the macroeconomy differently from the ordinary units, (2) TFU should not be included in the portfolio once we consider the liquidity factor, (3) the holding period-annualized return tradeoff of TFU differ significantly from the ordinary units, suggesting alternative investment strategies being used in TFU, and (4) the liquidity of the TFU segment is less stable than the ordinary units, and may therefore discourage short-term speculators.

Discussant(s)
Thao Le
,
Georgia State University
Robert French
,
Harvard Kennedy School
Lu Fang
,
Florida International University
Liuming Yang
,
Chinese University of Hong Kong
JEL Classifications
  • R0 - General