• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/118

Click to flip

118 Cards in this Set

  • Front
  • Back
What is (are) the determinant(s) of the demand for housing units?
- Income
- Population of households
What are the determinants of HH formation?
- Age Distribution
- Housing Costs
- Income
- Population Growth
- Taste Changes
Why was HH population growing faster than individual population in the U.S. until the 1990s?
- Divorce Rate increased
- Income increased
- Tastes changed
The "baby boom" refers to the increased birth rate during 1946-1964. What caused the baby boom?
- Income and Employment increased
- Marriage rate increased
- Pro-children, pro-housewife view
- Social Optimism
What are the financial costs, in terms of home ownership?
- Capital Losses
- Fees
- Implicit Opp. Cost of Alternative Investment
- Insurance
- Maintenance
- Mortgage Payments
- Property Taxes
- Utilities
What are the financial costs, in terms of renting?
- Deposit
- Rent
- Utilities
What are the financial benefits, in terms of home ownership?
- Capital Gains
- Savings Through Equity Accumulation
- Tax Breaks
What are the financial benefits, in terms of renting?
- Landlord's Tax Benefits Transferred to Renters
- Tax Deductions for Rent
Non-financial advantages of home ownership?
- Flexibility to Remodel
- Forced Saving
Non-financial advantages of rental?
- Flexibility to Move
- Less Stress with Repairs
Considering benefits and costs, for whom and in which situations home ownership is a better option?

For people who:
- Married w/ Children
- Older
- Rich
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
What are the main determinants of home ownership?
- Age
- Housing Cost
- Income
Why do renters move more often than homeowners?
- Lower transaction costs
- Selection bias
Why do older householders move less often than younger householders?
- Social Ties
- Stable Jobs
Why do poor householders move more often than richer householders?
- Looking for jobs
- Renters
- Younger people
Based on age distribution only, home ownership rate should have increased in the 70s and decreased in the 80s. Why?
- Income increased until 70s
- Interest rates decreased
If age distribution does not explain the changes in home ownership rate, what else explains the changes?
- Income increased until 70s
- Interest rates decreased
measure of housing price based on comparisons of prices of houses sold repeatedly during the sample period
Repeat Sale Housing Price Index (RSHPI)
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).
1990 = 100
1995 = 118
Are there flaws in the computation of housing price variations through the Repeat Sale Price Index?
- Bias towards houses sold more often
- Doesn't distinguish between market conditions and house/neighborhood conditions
measure of housing prices based on comparisons of average (or median) prices of houses sold in each period
Average (or Median) Sale Housing Price Index
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).
2000 = 100
2001 = 105
2002 = 108
Are there flaws in the computation of housing price variations through the Average (or Median) Sale Price Index?
- Bias towards houses sold more often
- Doesn't distinguish between market conditions and house/neighborhood conditions
mortgage plan where the interest rate is fixed over the life of the loan, so payments per month are constant
fixed payment mortgage
Over the life of a FPM, how does the proportion of the monthly payment that goes to amortization change?
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)
How does the mortgage balance change over the life of the mortgage?
Balance goes down faster as less interest is paid (more principal is paid off)
How does the home equity change over the life of the mortgage? Why?
- Price Change
- Principal payoffs
What is mortgage tilt?
Fixed Payment Mortgage
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.
decrease; inflation; higher; lower
How is the mortgage-tilt beneficial to lenders?
less chance of default for borrowers
a mortgage plan where the interest rate is periodically adjusted to the market rate, so that monthly payments are also periodically adjusted
adjustable rate mortgage
In which case as ARM can be better than a FPM for homebuyers?
- Buyers with increasing income
- Short-term buyers who expect increasing prices
Is an ARM riskier than a FPM to lenders?
- Higher risk of default as payments increase over time
- Lower risk of losses due to unexpected inflation or real long-term interest rate changes
loans for homebuyers who do not have prime credit
subprime mortgage
What was the role of the subprime mortgage in the 2008-2009 economic crisis?
- Interest rates increased
- Housing prices decreased
- Unemployment rates increased
- Income stayed the same

Lead to high default rates and foreclosures
a pool of individual mortgage rights that are sold as a security to investors
mortgage backed security
market through which funds are actually provided to the borrower
primary mortgage market
market in which existing mortgage loans are bought and sold by investors
secondary mortgage market
Why were MBSs and the secondary mortgage market important in the development of the mortgage market? How do they help homebuyers?
More credit, lower interest rates
What were the role of MBSs and the secondary mortgage market in the 2007-2009 credit and housing crisis?
- 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
How does the federal tax code help homeowners?
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
Why are richer households the ones who most benefit from the tax advantages given to home owners?
- Richer households own houses
- Richer households buy more expensive homes
- Richer households pay higher tax rates
What arguments do policymakers and supporters (construction and real estate businesses) give in defense of home ownership incentives?
- Forced Saving
- More care about community issues
How does the federal tax code help renters?
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
How does the federal tax code help renters?

home ownership _________ demand for rental units
decreases
What are the main services provided by housing?
- Comfort
- Financial returns
- Neighborhood services accessibility
- Privacy
- Shelter
How can we measure the overall quality of the services provided by a house?
Bid-Rent/Price
What determines housing expenditure?
- Income
- Mobility
- Preferences
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?
Tradeoff between size and other features
Why greater age of the householder is associated with greater housing expenditure?
- Less mobility
- More income
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
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
According to the evidence above, what is the main reason for moving in the U.S.?
Housing Quality
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?
Benefits are decreasing because of wages and housing quality
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?
Costs are increasing because of attachment to local community, moving costs increasing, and trading costs increasing because of home ownership and better houses
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.
Vacancy increasing, means time is increasing

Mobility is increasing, which means sales are increasing, which means that time is decreasing
Some property vacancy rate is good for society. Why?
- Hard to match what consumers want to what is available
- Have room for growth
- Vacancy gives incentive to care for quality supplied
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?
HH Income has increased by roughly 20%
Figure 9.4 in the textbook shows that construction activity is low when sale time is high. Explain this relationship.
Sale Time increases, meaning vacancy increases.

The opp. cost of building increases, so there is less construction
What is the main challenge in the planning stage of the development of non-residential rental R.E. property?
- Cost is easy
- Revenue is hard to estimate
What are the advantages of renting in the non-residential R.E. market?
- Easier to move to a more adequate space
- Immobilizing money, if owned
The proportion of renters is greater in the office R.E. market than in the industrial R.E. market. Why?
Easier to move because space is standard
Why is construction activity in the office space market more volatile than in the industrial space market?
Development depends on expectations on future demand and vacancy rates
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?
Built on speculation
How has the industrial space market changed in the last decades in the U.S.? Which type of manufacture space has seen more growth?
Outsourcing to Mexico, China, and India has taken place

Warehouses
How volatile is construction activity in the retail space market?
Not as well as industrial areas. Many are built by developers.
Why is vacancy rate lower and less volatile in the industrial space market than in the office market?
Industrial space is driven by market demand.
What is the relationship between vacancy rates and economic cycles in non-residential markets in the 2000s?
Vacancy rates are higher during times of low economic growth because there are less businesses
the fixed rent amount paid by the tenant to the landlord
nominal rent
length of lease
term
time interval between rent adjustments
steps
nominal rent adjustments tied to past inflation
inflation indexation
tenant is not responsible for paying taxes and utilities
gross rents
initial free-rent period and credit for remodeling or renovation
concessions
variable rent based on gross sales revenue, common in retail leases
overage rent
How does each lease component affect tenants or landlords? Who benefits with each of them?

Nominal Rent:
Landlord
How does each lease component affect tenants or landlords? Who benefits with each of them?

Term:
Landlord
How does each lease component affect tenants or landlords? Who benefits with each of them?

Steps:
Landlord
How does each lease component affect tenants or landlords? Who benefits with each of them?

Inflation Indexation:
Landlord
How does each lease component affect tenants or landlords? Who benefits with each of them?

Gross Rents:
Tenant
How does each lease component affect tenants or landlords? Who benefits with each of them?

Concessions:
Tenant
How does each lease component affect tenants or landlords? Who benefits with each of them?

Overage Rent:
Tenant
nominal rent + implicit lease costs - concessions
tenant's net effective rent
nominal rent + additional rents from overage rent and adjustments - ownership costs
landlord's net effective rent
Nominal rents of office R.E. space adjust slowly to changes in demand in the economy. Why?
- Effective Rent adjusts through other lease components
- Long contract terms
What is the relationship between demand for space and number of workers?
Positive
What is the relationship between demand for space and the space per worker ratio?
Positive
Demand for commercial real estate space increases if more workers are employed, which happens when:
- Production/Sales increases
- Future expected rent or need increases
Demand for commercial real estate space decreases when relative cost of capital decreases because?
substitute between increased capital and decreased labor
Demand for space decreases when space per worker ratio decreases because?
substitution between capital and space
Local government policies affect property values, but property values also affect local government policies. Explain.
Property Taxes Revenue depends on Property Values
a situation in which individuals select themselves into a group, thus inducing an outcome that is different for this group compared to others
selection bias due to self-selection
In the case above, richer households (who demand better government services) self-select into neighborhoods with _______ property values (so ____ property value means _____ government services)
higher; high; better
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
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
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
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
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
What are the benefits to the residents of a jurisdiction that receives new R.E. developments?
- Jobs
- More accessibility
- Tax Revenues
What are the costs to the residents of a jurisdiction that receives new R.E. developments?
- Congestion
- Crime
- Pollution
What can local governments do to restrict undesirable land developments?
- Regulation
- Zoning
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
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
What type of households will reside in the controlled area in the long run?
The Rich
How are local/regional businesses affected in the long run?
Higher wage and rent means move out, not grow, raising prices, which means there is less produced
unintended effects of an activity on third parties
externalities
Give examples of externality effects (caused by airport activities) suffered by households living in the neighborhood of an airport.
- Benefit from jobs or shopping that develops around
- Congestion in roads
- Pollution (Noise)
- Risk of Crash
Give two examples of government-promoted R.E. developments that create negative effects (externalities or not) to neighboring properties.
- Highways
- Jails
Give two examples of government-promoted R.E. developments that create positive effects (externalities or not) to neighboring property owners.
- Parks
- Police/ Fire Station
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?
Developers will keep developing property, if they have it.
good or services that are non-rival in consumption and non-excludable
public goods
In free competitive markets, features or developments that generate POSITIVE externalities are under-produced. Why?
Because there is not enough open space, in practice
What type of government intervention can be adopted to deal with inefficiencies caused by positive externalities from property developments?
Zoning
In free competitive markets, features or developments that generate NEGATIVE externalities are likely to be over-produced. Why?
You want to keep low density, so that there is not too much congestion.
What type of government intervention can be adopted to deal with inefficiencies caused by negative externalities from property developments?
Height Restrictions
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.
In the case of large scale developments, government intervention is usually not necessary to avoid inefficiencies from externalities. Why?
Developers know the market and what the market demands.