Working Papers

It is widely accepted that aggregate housing prices are predictable, but that excess returns to investors are precluded by the transactions costs of buying and selling property. We examine this issue using a unique data set -- all private condominium transactions in Singapore during an eleven-year period. We model directly the price discovery process for individual dwellings. Our empirical results clearly reject a random walk in prices, supporting mean reversion in housing prices and diffusion of innovations over space. We find that, when house prices and aggregate returns are computed from models that erroneously assume a random walk and spatial independence, they are strongly autocorrelated. However, when they are calculated from the appropriate model, predictability in prices and in investment returns is completely absent. We show that this is due to the illiquid nature of housing transactions. We also conduct extensive simulations, over different time horizons and with different investment rules, testing whether better information on housing price dynamics leads to superior investment performance.

This paper provides the first credible evidence on the economic value of the certification of “green buildings” -- derived from impersonal market transactions rather than engineering estimates. Our analysis of clusters of certified green buildings and nearby comparables establishes that buildings with “green ratings” command substantially higher rents and selling prices than otherwise identical buildings.

Moreover, variations in the premium for green office buildings are systematically related to their energy-saving characteristics. An increase in the energy efficiency of a green building is associated with a substantial increase in selling price – over and above the premium for a labeled building. Further evidence suggests that the intangible effects of the label itself may also play a role in determining the values of green buildings in the marketplace.

Even though several studies have assessed the degree of progressivity in targeting
communities under the participatory Social Investment Fund (SIF) approach to
the provision of local public goods, there is yet little evidence on how increasing
decentralization affects the quality of this targeting. We identify the impact of
increasing decentralization on community targeting using the unique situation of
Zambia’s SIFs where the degree of decentralization changed in time and space
across districts over the 15 years of program implementation. We find that greater
decentralization of SIFs’ functions to districts that had been deemed to have the
necessary level of managerial capacity led to more progressive targeting across
wards, mildly so at the national level and strongly so within districts. We also
observe how local electoral politics gained importance with greater
decentralization, with more votes received by the candidate from the majority
party in the district council attracting more projects to a ward, and more projects
in a ward rewarded by more votes for the councilor from the incumbent party.
Decentralization thus made concerns with community poverty more salient in
targeting and local politics more important in public goods allocation.

This paper compares the level and distribution of the welfare changes from restricting
land available for residential development in a city. We compare the economic costs
when residential capital is durable with the costs when capital is perfectly malleable and
those when population is also freely mobile. Our simulation, based on the stylized
specification of an urban location model, suggests that in a more realistic setting with
durable capital, the costs of regulation are substantially higher than they are when capital
is assumed to be malleable or when households are assumed to be fully mobile.
Importantly, the extent of wealth redistribution attributable to these regulations is much
larger when these more realistic factors are recognized. When capital is durable, the
results also imply that far more new development takes place on previously undeveloped
land at the urban boundary, sometimes resulting in an increase in land under
development.

This paper provides a survey of federal housing programs, establishing the
primary importance of indirect and off-budget activities in promoting housing and
providing subsidies to housing consumers. We consider the role of the Government
Sponsored Enterprises (GSEs) and the Veterans’’ Administration in supplying liquidity
and credit guarantees. We then consider in more detail the role of the FHA as supplier
and guarantor of credit. We especially focus on the rationale for these activities in the
light of the rise and subsequent collapse of the subprime mortgage market. We suggest
that a reinvigorated FHA mortgage program will be highly useful in its own right and
might be the appropriate agency to assume many of the activities currently undertaken by
the GSEs.

Food prices have more than doubled between mid-2006 and mid-2008, creating major
distress among the poor across the world, but also gainers among farm producers. While
transmission was largely averted in India, increasingly open food markets indicate the
need to anticipate the welfare implications of a repetition of such events in the future.
This paper simulates the welfare effects of the rise in the international price of cereals
and edible oils on a comprehensive typology of Indian households. Results show that
large farmers(with farm size of one hectare and more) would have gained as a group, and
that the average gain is large for those who gain, but that 59% of them in fact lose. The
main category of poor households negatively affected by the rise in prices is rural
(representing 77% of all losing poor households), both farmers and non-farmers. This is
contrary to conventional wisdom that looks at the urban poor as the main category to be
sheltered from rising prices through safety net measures, and expects most farmers to
gain. These rural households account for 79% of the aggregate welfare loss among the
poor. This makes a forceful case for the need to look beyond the urban poor when food
pricesrise.

During the past two decades, Swedish government policy has decentralized post-secondary education throughout the country. We investigate the economic effects of this decentralization policy on the level of productivity and innovation and their spatial distribution in the national economy. We find important and significant effects of this investment policy upon economic output and the locus of knowledge production, suggesting that the decentralization has affected regional development through local innovation and increased creativity. Our evidence also suggests that aggregate productivity was increased by the deliberate policy of decentralization. Finally, we estimate the spillovers of university investment over space, finding that they are substantial, but that they are greatly attenuated. Agglomerative effects decline rapidly; roughly half of the productivity gains from these investments are manifest within 5–8 km of the community in which they are made.

The Federal takeover of Fannie Mae and Freddie Mac last September spells the end of an experiment in the public-private hybrid known as the Government Sponsored Enterprises (GSE). This paper documents the subsidies provided to the enterprises and the public and private benefits generated. The public benefits included somewhat reduced interest rates for borrowers receiving conforming mortgages. The public subsidies allowed the firms to use the implicit guarantee of their debts to borrow at attractive rates to invest in mortgage portfolios and also to provide a fee-based service in issuing mortgage-backed securities.

We suggest reforming the functions provided by the GSEs. In particular we advocate spinning off the portfolio investment activities into a fully private firm. We also advocate conducting the services necessary to issue mortgage-backed securities within a government-owned corporation responsible directly to federal authorities. These reforms would curb excess risk taking in the secondary mortgage market and would provide the liquidity necessary to support the primary mortgage market.