Real Estate

We study the equilibrium properties of an overlapping-generation economy where agents choose where to locate and how much housing to own, and city residents vote on the number of new building permits every period. Undersupply of housing persists in equilibrium under conditions we characterize. City residents invest in housing because they expect their investment to be protected by a majority opposed to urban growth. They vote against growth because they have invested in local housing.

We track the evolution of financing of residential real estate through the housing boom in the early- to mid-2000s and the resolution of distress during the bust during the late 2000s. Financial innovation, in the form of non-traditional mortgage products and the expansion of alternative lending channels, namely non-agency securitization, fundamentally altered the mortgage landscape during the boom. We describe the impact of these changes in mortgage finance on borrowers and loan performance, as well as their impact on the resolution of distressed mortgages.

This paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default. When considering improvements in the borrower's creditworthiness as one of the reasons for refinancing mortgages, we show that refinancing penalties can be welfare improving, and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates, reduced defaults, and increased availability of credit.

Large long-run differences in average house price appreciation across metropolitan areas over the past 50 years have led to wide spatial dispersion in house prices. We show this can be explained in large part by inelastic supply of land in some attractive locations combined with an increasing number of high-income households nationally. The resulting high house prices crowd out lower-income households from living in high price growth superstar housing markets, inducing a right-shift in the local area income distribution.

We study the impact of the end of race-based busing in Charlotte-Mecklenburg schools ("CMS") on academic achievement, educational attainment, and young adult crime. In 2001, CMS was prohibited from using race in assigning students to schools. School boundaries were redrawn dramatically to reflect the surrounding neighborhoods, and half of its students received a new assignment. Using addresses measured prior to the policy change, we compare students in the same neighborhood that lived on opposite sides of a newly drawn boundary.

We consider the optimal design of mortgage-backed securities (MBS) in a dynamic setting in which a mortgage underwriter with limited liability can engage in costly hidden effort to screen borrowers and can sell loans to investors. We show that (i) the timing of payments to the underwriter is the key incentive mechanism, (ii) the maturity of the optimal contract can be short, and that (iii) bundling mortgages is efficient as it allows investors to learn about underwriter effort more quickly, an information enhancement effect.

We use data from credit report and deeds records to better understand the extent to which second liens contributed to the housing crisis by allowing buyers to purchase homes with small down payments. At the top of the housing market second liens were quite prevalent, with as many as 45 percent of home purchases in coastal markets and bubble locations involving a piggyback second lien. Owner-occupants were more likely to use piggyback second liens than investors.

Government officials, policy analysts, practitioners, and academics from diverse perspectives across the globe have enthusiastically endorsed the promise of public-private engagement to solve pressing problems of public policy.  The endorsement often is a rallying cry for a change in policy or reform of a prevailing policy regime.  In theory and practice, the idea of public-private (PP) blurs prevailing distinctions between roles and actions traditionally considered properly “public” and those roles and actions conventionally considered properly “private.”  It signifies a shi

We characterize the optimal mortgage contract in a continuous time setting with stochastic growth in house price and income, costly foreclosure, and a risky borrower who requires incentives to repay his debt. We show that many features of subprime loans can be consistent with properties of the optimal contract and that, when house prices decline, mortgage modification can create value for borrowers and lenders.