                         |
 | |||||||
Wharton News
Professor Wachter in ChicagoSusan Wachter, Professor of Real Estate and Finance and Richard Herring, Jacob Safra Professor of International Banking and Professor of Finance recently delivered a paper on "Bubbles in the Real Estate Market" at a conference in Chicago. The conference "Asset Price Bubbles: Implications for Monetary, Regulatory and International Policies," was cosponsored by the Federal Reserve Bank of Chicago and the World Bank Group.
Press Reports on "The Impact of Zoning on Housing Affordability" by Joseph Gyourko and Edward L. GlaeserAn article in the June 3rd edition of the Philadelphia Inquirer by Andrew Cassel on the costs of zoning and land-use regulations cited a recent working paper by Professors Joseph Gyourko and Edward Glaeser.Cassel reports that mega-developers are doing an increasing share of America’s building because they have the financial and legal muscle to withstand lengthy challenges, and zoning and regulatory battles. In their paper (Zell/Lurie WP #395, The Impact of Zoning on Housing Affordability), Gyourko and Glaeser calculate zoning costs by comparing sales prices for lots with and without houses on them, then factor out construction costs. What’s left is the value of "the right to build" - that is, what people are willing to pay to not have to go through the land-use and permit process. In Philadelphia the cost is $2.43 per square foot, roughly four times the value of the land and in New York and Los Angeles zoning can add up to more than $30 per square foot to land costs. Thomas Sowell in a June syndicated column, also reported on the analysis by Gyourko and Glaeser. "America is not facing a nationwide affordable housing crisis" write Gyourko and Glaeser. Housing is expensive in high-price areas "because of artificial limits on construction created by regulation of new housing."
Business Week, New York Times and Hartford Courant Quote Professor Susan WachterInflation in the largest metropolitan areas was 2.1% compared with 1.1% in smaller cities and only 0.7% in nonmetropolitan urban areas. The difference primarily was due to housing, reports an article appearing in the June 3rd edition of Business Week. "Housing prices have increased in cities faster than inflation," states Professor Wachter. Higher prices reflect a sort of urban renaissance. The largest American cities are losing population at a much slower rate these days but rural towns have been shrinking. Building near big cities is becoming harder as local governments are trying to limit urban sprawl. These policies make cities more livable but also limit the local housing supply. Such antisprawl zoning started in the late 1980s, "but now it is pervasive enough to affect metropolitan areas nationwide," says Wachter.An article in the New York Times (5/29) quoted Professor Wachter on two proposed office tower developments in Philadelphia. Wachter commented, "Often real estate is built as long as the funding is there, even if it looks like it will increase vacancy rates across the city, and these absolutely will." The Hartford Courant (5/12) reports that a British-backed real estate firm, YHD (Your Home Direct) is offering Fairfield County, Connecticut homeowners the opportunity to sign with them by taking commissions as low as 2 percent - offering different levels of service for different prices. With median home values in the county over $500,000, homeowners willing to do some of the work themselves can save more than $20,000. YHD is also encroaching on the territory of the Multiple Listing Service (MLS), now considered essential for reaching potential buyers. YHD offers clients its own Internet site to list their homes if they choose the 2 percent commission plan. "This offers another route other than the MLS to advertise your property," says Wachter.
Professor Chris Mayer quoted in Wall Street JournalChristopher Mayer, Wharton Associate Professor of Real Estate, was quoted in a Wall Street Journal article on buying a house in a market bubble. The article looked at strategies that economists recommend when house shopping in an over heated market. Prices for high-end homes tend to be more volatile than prices for low-end homes, so avoid overstretching. Be wary of single-industry towns, as home prices are extremely sensitive to the underlying job market of a local economy. Buying in a good school district won’t necessarily protect you. In the 1980s in Boston, homes in good school districts fared worse than homes in bad school districts. "As you get fewer school-age kids the premium placed on areas with good school districts goes down," says Professor Mayer. Tight supply does push up prices but markets where new supply is constrained by geography or tight zoning regulations are more volatile in price.
|
