October 20, 2017
Daniel Aaronson et al. have posted The Effects of the 1930s HOLC “Redlining” Maps to SSRN. The paper provides empirical support for the argument that discriminatory government policies have consequences that can last for decades, including increased segregation. The abstract reads,
In the wake of the Great Depression, the Federal government created new institutions such as the Home Owners’ Loan Corporation (HOLC) to stabilize housing markets. As part of that effort, the HOLC created residential security maps for over 200 cities to grade the riskiness of lending to neighborhoods. We trace out the effects of these maps over the course of the 20th and into the early 21st century by linking geocoded HOLC maps to both Census and modern credit bureau data. Our analysis looks at the difference in outcomes between residents living on a lower graded side versus a higher graded side of an HOLC boundary within highly close proximity to one another. We compare these differences to “counterfactual” boundaries using propensity score and other weighting procedures. In addition, we exploit borders that are least likely to have been endogenously drawn. We find that areas that were the lower graded side of HOLC boundaries in the 1930s experienced a marked increase in racial segregation in subsequent decades that peaked around 1970 before beginning to decline. We also find evidence of a long-run decline in home ownership, house values, and credit scores along the lower graded side of HOLC borders that persists today. We document similar long-run patterns among both “redlined” and non-redlined neighborhoods and, in some important outcomes, show larger and more lasting effects among the latter. Our results provide strongly suggestive evidence that the HOLC maps had a causal and persistent effect on the development of neighborhoods through credit access.
The paper’s conclusion is just as interesting:
That the pattern begins to revert starting in the 1970s is at least suggestive that Federal interventions like the Fair Housing Act of 1968, the Equal Credit Opportunity Act of 1974, and the Community Reinvestment Act of 1977 may have played a role in reversing the increase in segregation caused by the HOLC maps. . . . We believe our results highlight the key role that access to credit plays on the growth and long-running development of local communities. (33)
- The Consumer Financial Protection Bureau (CFPB) recently released a report detailing its consumer protection principles. In the report, the CFPB lists their grounds for authorizing “financial data sharing and aggregation.” The agency’s goal is to improve the market by enhancing financial services and products, fostering competition, and enabling consumers to fully own their financial choices. The agency notes, while these principles provide for great practice, they are not intended to override or overturn any existing statutes or rules in the financial industry.
- The U.S. Commerce Department recently released a report regarding new residential construction across the Nation. In various pockets throughout the U.S., building permits among other indicia of building new homes have declined. According to the report by the Commerce Department, new home construction is well below the homebuilding percentages of 2006. Moreover, homebuilding is in its third month of decline. Similar to building permits and new home construction, housing stocks are also decreasing.
October 19, 2017
The Los Angeles Business Council released its Housing Pays Report: Capturing the Economic and Fiscal Benefits of Increased Housing Production in L.A. LA has been taking serious steps recently to deal with its housing crisis and this report describes those steps and argues that increased housing production has a net fiscal surplus. The Executive Summary reads,
Recent reports have consistently ranked Los Angeles among the most unaffordable housing markets n the nation, with rents and housing values growing at a rapid clip even as incomes remain stagnant. In LA County about 6 in 10 renters are cost-burdened, paying at least 30 percent of their income on housing each month, and nearly one third of county renters spend more than 50 percent of their income on housing. The outlook is grim even for middle-class families looking to buy, with a median home value of over $550,000.
Although there are many factors contributing to Los Angeles’ affordability crisis, it can largely be boiled down to an issue of supply and demand: Housing production has not kept up with population and job growth. For decades the region has operated under the false premise that “if you don’t build it, they won’t come,” and the housing shortage that’s followed has had disastrous—and yet predictable—results. Vacancy rates have fallen to historic lows, forcing residents to pay more each year just to secure their place in the city.
Recognizing the importance of housing production for stabilizing rents for residents at every income level, Los Angeles Mayor Eric Garcetti set a goal to build 100,000 new housing units in LA by 2021, including 15,000 homes affordable to low-income households. To meet the Mayor’s 2021 goal, the market will have to produce an average of 12,500 new units annually between 2013 and 2021—5,000 more, each year, than were developed between 2000 and 2010. The city is currently on pace to achieve this goal, but we are expected to experience an economic downturn and depressed development cycle before 2021, and recently passed initiatives, such as Build Better LA, have added significant regulation to future development. To ensure that the 100,000-unit goal is met, the city must enact reforms that allow us to make the most of a strong market, and help us weather the years ahead as the current development cycle runs its course.
Streamlining LA’s development process to sustain high levels of market-rate housing production benefits the city’s financial bottom line, provides new revenues that may be re-invested in affordable housing, and creates thousands of privately-funded housing units for low- and moderate-income households by leveraging the state’s density bonus law.
The LABC Institute has long made the case for the economic, environmental, and equity benefits of increased levels of housing production, particularly near LA County’s major transit hubs. Housing Pays seeks to demonstrate the fiscal benefit of increased housing production, and how that fiscal surplus can support important city priorities including affordable housing. The report analyzes the net fiscal impact of new market-rate housing production on the city’s general fund budget, which considers the revenues new housing generates through taxes and fees, and the expenses incurred for services directly related to supporting new residents, such as police and fire department services, to estimate the net impact to the general fund. (5, footnotes omitted)
I am not in a position to evaluate whether the report’s conclusions about the the net fiscal impact of housing development, but it is clear that this is a useful exercise. Communities often focus on the costs of hew construction — strain on roads, mass transit and schools — without considering the gains. This report should help those in LA who seek to increase the supply of housing to benefit both the city’s residents and the city’s economy.
- Fannie Mae’s, Economic and Strategic Research Group released their October 2017 Economic and Housing Outlook (EHO). According to their study, the hurricanes which hit the Nation’s southern coasts did not negatively impact the economy as anticipated. Though there were decreases in residential investment and spending, business investment and trade balanced the decline. Further, October’s EHO projects mortgage loan rates will increase one additional time, likely in December.
- It seems as if the political demographics of neighborhoods are changing. A study by Redfin found that 7.4% more people moved out of blue counties while red counties experienced a move-out percentage at 1% in the first half of this year. Nela Richardson, a data analyst at Redfin, cites affordability of blue counties as the cause for the shift in the neighborhood dynamics. Further, the states most affected by the affordability issues in blue counties are Colorado, Oregon, and Washington while Louisiana, New Mexico, and Indiana are not experiencing the same issues regarding blue counties’ housing costs increase.
- Local Logit Regression for Recovery Rate, Gao, Sopitpongstorn, and Silvapulle
- The Regulation of Mortgage Servicing: Lessons from the Financial, Garcia-Feijoo, McNulty, and Viale
- The Politics of Foreclosures, Agarwal, Amromin, Ben-David, and Dinc
- A Shortage of Short Sales: Explaining the Under-Utilization of a Foreclosure Alternative, Zhang
- Modeling Adam Smith’s Analysis of the Very Severe, Negative Impacts of ‘Projectors, Imprudent Risk Takers and Prodigals’ on the Macro Economy in the Wealth of Nations Using a Modified Lotka-Volterra Non Linear Coupled Model of Differential Equations, Brady
October 17, 2017
Lee Anne Fennell and Benjamin Keys have posted the Introduction to their new book, Evidence and Innovation in Housing Law and Policy, to SSRN. It opens,
No area of law and policy presents more important and pressing questions, or ones more central to human well-being, than that of housing. Yet academic discourse around housing is too often siloed into separate topical areas and disciplinary approaches, while remaining distanced from the contentious housing policy debates unfolding in communities across the nation. In June 2016, the Kreisman Initiative on Housing Law and Policy at the University of Chicago Law School convened a conference in downtown Chicago with the goal of breaking down these barriers and forging new connections – between different facets of housing law and policy, between different disciplinary approaches to housing issues, between academic inquiry and applied policy, and between the lessons of the past and adaptations for the future.
This volume is the product of that conference and the dialogue it provoked among academics, practitioners, and policy makers. Its baker’s dozen of contributions comprises cutting-edge interdisciplinary work on housing and housing finance from leading scholars in law, economics, and policy. The pieces individually and collectively showcase how research and policy can come together in the housing arena. We hope the end result will have lasting relevance in setting the course – and identifying the obstacles – for housing law and policy going forward.
This book is organized around two interlocking roles that housing serves: as a vehicle for building community, and as a vehicle for building wealth. These facets of housing carry implications both for the households who consume residential services and for the larger economic, political, and spatial domains in which housing plays such a primary and contentious role. Cumulatively, the pieces here confront, and respond innovatively to, the dilemmas that these two facets of housing create for law and policy at different scales of analysis. (1)
This collection of papers brings together an all-star cast of housing nerds. While the papers are an eclectic mix, they are pretty consistent in that they ask important questions about housing policy. Even better, the Introduction contains links to open access versions of each paper. They are listed below:
Part I – Housing and the Metropolis: Law and Policy Perspectives
1 – The Rise of the Homevoters: How the Growth Machine Was Subverted by OPEC and Earth Day By William A. Fischel
2 – How Land Use Law Impedes Transportation Innovation By David Schleicher
3 – The Unassailable Case against Affordable Housing Mandates By Richard A. Epstein
Part II – Housing as Community: Stability, Change, and Perceptions
4 – Balancing the Costs and Benefits of Historic Preservation By Ingrid Gould Ellen & Brian J. McCabe
5 – Historic Preservation and Its Even Less Authentic Alternative By Lior Jacob Strahilevitz
6 – Losing My Religion: Church Condo Conversions and Neighborhood Change By Georgette Chapman Phillips
7 – How Housing Dynamics Shape Neighborhood Perceptions By Matthew Desmond
Part III – Housing as Wealth Building: Consumers and Housing Finance
8 – Behavioral Leasing: Renter Equity as an Intermediate Housing Form By Stephanie M. Stern
9 – Housing, Mortgages, and Retirement By Christopher J. Mayer
10 – The Rise and (Potential) Fall of Disparate Impact Lending Litigation By Ian Ayres, Gary Klein, & Jeffrey West
Part IV – Housing and the Financial System: Risks and Returns
11 – Household Debt and Defaults from 2000 to 2010: The Credit Supply View By Atif Mian & Amir Sufi
12 – Representations and Warranties: Why They Did Not Stop the Crisis By Patricia A. McCoy & Susan Wachter
13 – When the Invisible Hand Isn’t a Firm Hand: Disciplining Markets That Won’t Discipline Themselves By Raphael W. Bostic & Anthony W. Orlando