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118 Cards in this Set
- Front
- Back
What is (are) the determinant(s) of the demand for housing units?
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- Income
- Population of households |
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What are the determinants of HH formation?
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- Age Distribution
- Housing Costs - Income - Population Growth - Taste Changes |
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Why was HH population growing faster than individual population in the U.S. until the 1990s?
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- Divorce Rate increased
- Income increased - Tastes changed |
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The "baby boom" refers to the increased birth rate during 1946-1964. What caused the baby boom?
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- Income and Employment increased
- Marriage rate increased - Pro-children, pro-housewife view - Social Optimism |
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What are the financial costs, in terms of home ownership?
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- Capital Losses
- Fees - Implicit Opp. Cost of Alternative Investment - Insurance - Maintenance - Mortgage Payments - Property Taxes - Utilities |
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What are the financial costs, in terms of renting?
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- Deposit
- Rent - Utilities |
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What are the financial benefits, in terms of home ownership?
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- Capital Gains
- Savings Through Equity Accumulation - Tax Breaks |
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What are the financial benefits, in terms of renting?
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- Landlord's Tax Benefits Transferred to Renters
- Tax Deductions for Rent |
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Non-financial advantages of home ownership?
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- Flexibility to Remodel
- Forced Saving |
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Non-financial advantages of rental?
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- Flexibility to Move
- Less Stress with Repairs |
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Considering benefits and costs, for whom and in which situations home ownership is a better option?
For people who: |
- Married w/ Children
- Older - Rich |
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Considering benefits and costs, for whom and in which situations home ownership is a better option?
When/where: |
- More job availability
- Regional growth - When High Future Prices Expected |
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What are the main determinants of home ownership?
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- Age
- Housing Cost - Income |
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Why do renters move more often than homeowners?
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- Lower transaction costs
- Selection bias |
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Why do older householders move less often than younger householders?
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- Social Ties
- Stable Jobs |
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Why do poor householders move more often than richer householders?
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- Looking for jobs
- Renters - Younger people |
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Based on age distribution only, home ownership rate should have increased in the 70s and decreased in the 80s. Why?
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- Income increased until 70s
- Interest rates decreased |
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If age distribution does not explain the changes in home ownership rate, what else explains the changes?
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- Income increased until 70s
- Interest rates decreased |
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measure of housing price based on comparisons of prices of houses sold repeatedly during the sample period
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Repeat Sale Housing Price Index (RSHPI)
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Suppose a house was sold in 1990 for $100,000 and again in 1995 for $118,000. Based on this information only, compute the RSHPI for 1990 and 1995 (take 1990 as the base year).
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1990 = 100
1995 = 118 |
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Are there flaws in the computation of housing price variations through the Repeat Sale Price Index?
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- Bias towards houses sold more often
- Doesn't distinguish between market conditions and house/neighborhood conditions |
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measure of housing prices based on comparisons of average (or median) prices of houses sold in each period
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Average (or Median) Sale Housing Price Index
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Suppose the average price of houses sold in a town 2000 was $200,000. In 2001, the average price was $210,000. In 2002, the average price was $216,000. Based on this information only, compute the Average Sale HPI for 2000, 2001, and 2002 (take 2000 as the base year).
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2000 = 100
2001 = 105 2002 = 108 |
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Are there flaws in the computation of housing price variations through the Average (or Median) Sale Price Index?
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- Bias towards houses sold more often
- Doesn't distinguish between market conditions and house/neighborhood conditions |
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mortgage plan where the interest rate is fixed over the life of the loan, so payments per month are constant
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fixed payment mortgage
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Over the life of a FPM, how does the proportion of the monthly payment that goes to amortization change?
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With high initial balance, most of the monthly payment goes to pay interests, as the balance goes down, the share of interests goes down (so more goes towards paying principal)
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How does the mortgage balance change over the life of the mortgage?
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Balance goes down faster as less interest is paid (more principal is paid off)
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How does the home equity change over the life of the mortgage? Why?
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- Price Change
- Principal payoffs |
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What is mortgage tilt?
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Fixed Payment Mortgage
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Real FPM payments ___________ over time due to ___________, i.e., real payments are tilted so that they are _____________ in the beginning of the loan, but __________ at the end.
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decrease; inflation; higher; lower
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How is the mortgage-tilt beneficial to lenders?
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less chance of default for borrowers
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a mortgage plan where the interest rate is periodically adjusted to the market rate, so that monthly payments are also periodically adjusted
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adjustable rate mortgage
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In which case as ARM can be better than a FPM for homebuyers?
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- Buyers with increasing income
- Short-term buyers who expect increasing prices |
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Is an ARM riskier than a FPM to lenders?
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- Higher risk of default as payments increase over time
- Lower risk of losses due to unexpected inflation or real long-term interest rate changes |
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loans for homebuyers who do not have prime credit
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subprime mortgage
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What was the role of the subprime mortgage in the 2008-2009 economic crisis?
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- Interest rates increased
- Housing prices decreased - Unemployment rates increased - Income stayed the same Lead to high default rates and foreclosures |
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a pool of individual mortgage rights that are sold as a security to investors
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mortgage backed security
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market through which funds are actually provided to the borrower
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primary mortgage market
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market in which existing mortgage loans are bought and sold by investors
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secondary mortgage market
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Why were MBSs and the secondary mortgage market important in the development of the mortgage market? How do they help homebuyers?
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More credit, lower interest rates
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What were the role of MBSs and the secondary mortgage market in the 2007-2009 credit and housing crisis?
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- Mortgage lending and securitization were under loose regulations
- Investors kept buying MBSs due to large availability of funds and inaccurate credit ratings - In 2006, interest rates and unemployment rates increased, while home prices remained the same or decreased, causing mortgage default rates to go up |
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How does the federal tax code help homeowners?
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Property tax payments and mortgage interest payments are deductible from taxable income
Tax exemptions on capital gains from sale of house that was the primary residence for 2 of the last 5 years |
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Why are richer households the ones who most benefit from the tax advantages given to home owners?
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- Richer households own houses
- Richer households buy more expensive homes - Richer households pay higher tax rates |
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What arguments do policymakers and supporters (construction and real estate businesses) give in defense of home ownership incentives?
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- Forced Saving
- More care about community issues |
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How does the federal tax code help renters?
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Tax benefits to landlords:
- mortgage interest deduction - business expense deductions - accounting depreciation of rental units (27.5 years), which reduces tax costs in the first 27.5 years |
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How does the federal tax code help renters?
home ownership _________ demand for rental units |
decreases
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What are the main services provided by housing?
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- Comfort
- Financial returns - Neighborhood services accessibility - Privacy - Shelter |
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How can we measure the overall quality of the services provided by a house?
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Bid-Rent/Price
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What determines housing expenditure?
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- Income
- Mobility - Preferences |
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As the previous table shows, as the number of people in the household increases, housing expenditure does not necessarily go up. How is that possible?
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Tradeoff between size and other features
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Why greater age of the householder is associated with greater housing expenditure?
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- Less mobility
- More income |
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In chapter 8, we saw that household mobility decreases with age of householder. But what determines household mobility?
Benefit: |
- Better Location, Neighborhood, House
- Gain of Income |
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In chapter 8, we saw that household mobility decreases with age of householder. But what determines household mobility?
Cost: |
- Losses of Income, Greater Commuting , Loss of Quality
- Loss of Social Relations - Moving Cost - Trading Costs |
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According to the evidence above, what is the main reason for moving in the U.S.?
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Housing Quality
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Based on the benefit-cost analysis of housing mobility, how do we explain that older householders move less often than younger counterparts, in terms of benefits?
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Benefits are decreasing because of wages and housing quality
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Based on the benefit-cost analysis of housing mobility, how do we explain that older householders move less often than younger counterparts, in terms of costs?
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Costs are increasing because of attachment to local community, moving costs increasing, and trading costs increasing because of home ownership and better houses
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Table 9.6 in the textbook shows that the average sale time depends on the vacancy rate and the mobility rate of households in the area. Explain.
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Vacancy increasing, means time is increasing
Mobility is increasing, which means sales are increasing, which means that time is decreasing |
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Some property vacancy rate is good for society. Why?
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- Hard to match what consumers want to what is available
- Have room for growth - Vacancy gives incentive to care for quality supplied |
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Consider the data shown in the tables above and in table 9.7 in the textbook. What has happened with housing characteristics over the last three decades?
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HH Income has increased by roughly 20%
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Figure 9.4 in the textbook shows that construction activity is low when sale time is high. Explain this relationship.
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Sale Time increases, meaning vacancy increases.
The opp. cost of building increases, so there is less construction |
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What is the main challenge in the planning stage of the development of non-residential rental R.E. property?
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- Cost is easy
- Revenue is hard to estimate |
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What are the advantages of renting in the non-residential R.E. market?
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- Easier to move to a more adequate space
- Immobilizing money, if owned |
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The proportion of renters is greater in the office R.E. market than in the industrial R.E. market. Why?
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Easier to move because space is standard
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Why is construction activity in the office space market more volatile than in the industrial space market?
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Development depends on expectations on future demand and vacancy rates
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Construction activity in the office space market is not well linked to economic cycles. On the other hand, construction activity in the industrial space market follows economic cycles. Why?
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Built on speculation
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How has the industrial space market changed in the last decades in the U.S.? Which type of manufacture space has seen more growth?
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Outsourcing to Mexico, China, and India has taken place
Warehouses |
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How volatile is construction activity in the retail space market?
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Not as well as industrial areas. Many are built by developers.
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Why is vacancy rate lower and less volatile in the industrial space market than in the office market?
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Industrial space is driven by market demand.
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What is the relationship between vacancy rates and economic cycles in non-residential markets in the 2000s?
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Vacancy rates are higher during times of low economic growth because there are less businesses
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the fixed rent amount paid by the tenant to the landlord
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nominal rent
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length of lease
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term
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time interval between rent adjustments
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steps
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nominal rent adjustments tied to past inflation
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inflation indexation
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tenant is not responsible for paying taxes and utilities
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gross rents
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initial free-rent period and credit for remodeling or renovation
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concessions
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variable rent based on gross sales revenue, common in retail leases
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overage rent
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Nominal Rent: |
Landlord
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Term: |
Landlord
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Steps: |
Landlord
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Inflation Indexation: |
Landlord
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Gross Rents: |
Tenant
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Concessions: |
Tenant
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How does each lease component affect tenants or landlords? Who benefits with each of them?
Overage Rent: |
Tenant
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nominal rent + implicit lease costs - concessions
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tenant's net effective rent
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nominal rent + additional rents from overage rent and adjustments - ownership costs
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landlord's net effective rent
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Nominal rents of office R.E. space adjust slowly to changes in demand in the economy. Why?
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- Effective Rent adjusts through other lease components
- Long contract terms |
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What is the relationship between demand for space and number of workers?
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Positive
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What is the relationship between demand for space and the space per worker ratio?
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Positive
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Demand for commercial real estate space increases if more workers are employed, which happens when:
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- Production/Sales increases
- Future expected rent or need increases |
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Demand for commercial real estate space decreases when relative cost of capital decreases because?
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substitute between increased capital and decreased labor
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Demand for space decreases when space per worker ratio decreases because?
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substitution between capital and space
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Local government policies affect property values, but property values also affect local government policies. Explain.
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Property Taxes Revenue depends on Property Values
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a situation in which individuals select themselves into a group, thus inducing an outcome that is different for this group compared to others
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selection bias due to self-selection
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In the case above, richer households (who demand better government services) self-select into neighborhoods with _______ property values (so ____ property value means _____ government services)
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higher; high; better
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In a free land market, poor households would be able to move into a richer community.
Why would they want to move there? |
Better quality
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In a free land market, poor households would be able to move into a richer community.
How would they do so despite the higher land price? |
Live in smaller housing
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In a free land market, poor households would be able to move into a richer community.
What can rich communities do to stop poor households from moving in? |
Large Lot Zoning, Low Density Zoning
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Another source of local revenue is grants from state or federal governments.
Central cities typically have more than a proportional share of the grants. Why? |
Positive externalities to other cities
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Another source of local revenue is grants from state or federal governments.
How are property values affected by intergovernmental grants received by the city? |
If grant improves, then rent increases, and value increases
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What are the benefits to the residents of a jurisdiction that receives new R.E. developments?
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- Jobs
- More accessibility - Tax Revenues |
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What are the costs to the residents of a jurisdiction that receives new R.E. developments?
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- Congestion
- Crime - Pollution |
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What can local governments do to restrict undesirable land developments?
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- Regulation
- Zoning |
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How do growth controls (regulations to slow down new developments) affect the controlled city?
a) What happens with the price of undeveloped land in the controlled area? |
Decreases
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The price of developed land in the controlled area should go up after the adoption of growth control, especially in the long run.
How does the growth control affect housing supply in the region? |
Less housing land in the region means higher prices
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What type of households will reside in the controlled area in the long run?
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The Rich
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How are local/regional businesses affected in the long run?
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Higher wage and rent means move out, not grow, raising prices, which means there is less produced
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unintended effects of an activity on third parties
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externalities
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Give examples of externality effects (caused by airport activities) suffered by households living in the neighborhood of an airport.
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- Benefit from jobs or shopping that develops around
- Congestion in roads - Pollution (Noise) - Risk of Crash |
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Give two examples of government-promoted R.E. developments that create negative effects (externalities or not) to neighboring properties.
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- Highways
- Jails |
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Give two examples of government-promoted R.E. developments that create positive effects (externalities or not) to neighboring property owners.
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- Parks
- Police/ Fire Station |
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Many public amenities can only be provided by governments. For instance, open space preservation must be provided by governments. Why wouldn't the private land market provide enough open space?
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Developers will keep developing property, if they have it.
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good or services that are non-rival in consumption and non-excludable
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public goods
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In free competitive markets, features or developments that generate POSITIVE externalities are under-produced. Why?
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Because there is not enough open space, in practice
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What type of government intervention can be adopted to deal with inefficiencies caused by positive externalities from property developments?
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Zoning
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In free competitive markets, features or developments that generate NEGATIVE externalities are likely to be over-produced. Why?
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You want to keep low density, so that there is not too much congestion.
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What type of government intervention can be adopted to deal with inefficiencies caused by negative externalities from property developments?
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Height Restrictions
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Houston, Texas has little government land use regulation, but neighborhoods are not worse than in regulated cities.
This is an example that most neighborhoods would not degrade even in the absence of government intervention. How is this possible? |
Neighbors sign legal contracts amongst themselves that prevents negative externalities within neighborhoods.
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In the case of large scale developments, government intervention is usually not necessary to avoid inefficiencies from externalities. Why?
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Developers know the market and what the market demands.
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