REFinBlog

Editor: David Reiss
Cornell Law School

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November 11, 2014

Veterans Day Then and Now

By David Reiss

Pericles, the greatest orator of Athens, had this to say more than 2,400 years ago when commemorating the sacrifices of his city’s soldiers during the Peloponnesian War:

Our form of government is called a democracy because its administration is in the hands, not of a few, but of the whole people. In the settling of private disputes, everyone is equal before the law. Election to public office is made on the basis of ability, not on the basis of membership to a particular class. No man is kept out of public office by the obscurity of his social standing because of his poverty, as long as he wishes to be of service to the state. And not only in our public life are we free and open, but a sense of freedom regulates our day-to-day life with each other. We do not flare up in anger at our neighbor if he does what he likes. And we do not show the kind of silent disapproval that causes pain in others, even though it is not a direct accusation. In our private affairs, then, we are tolerant and avoid giving offense. But in public affairs, we take great care not to break law because of the deep respect we have for them. We give obedience to the men who hold public office from year to year. And we pay special regard to those laws that are for the protection of the oppressed and to all the unwritten laws that we know bring disgrace upon the transgressor when they are broken.

That sounds like a city worth fighting for millennia ago and a society to aspire to today.

November 11, 2014 | Permalink | No Comments

November 10, 2014

Reiss on Refis Redux

By David Reiss

Refinancing must be in the air because I was interviewed twice in the last week about them. The first story appeared here. The second story, This Could Be Your Last Shot to Refinance a Mortgage, is in the Fiscal Times. It reads, in part,

After the Fed’s announcement Wednesday that it would end its historic $3 trillion bond-buying program, mortgage rates predictably began to rise.

The good news is that they were rising from the lowest rates of the year, after tumbling through most of October. At just over 4 percent, today’s mortgages rates still remain extremely low by historical standards. In 2008, before the housing busts, rates were around 6.5 percent.

*     *     *

Banks are stilled scarred from the housing bust and are dealing with significant changes to the regulatory environment, so lending standards are much tighter than they were in the past. Even former Fed chair Ben Bernanke recently admitted to having had his mortgage refinance application rejected.

To get the best rate, you’ll need excellent credit and lots of documentation of your income and assets. The average credit score for closed loans in September was 726, according to Ellie Mae.

Finally, shop around. “Talk to a big bank, talk to a little bank, talk to a mortgage broker,” says David Reiss, a professor of real estate finance at Brooklyn Law School. The gap between the best and the worst mortgage deals can be as much as a full percentage point.

November 10, 2014 | Permalink | No Comments

November 7, 2014

Reiss on Airbnb

By David Reiss

MainStreet.com quoted me in Housing Activists Claim Airbnb Cuts Into Affordable Apartment Inventory in Manhattan. The story opens

Popular and trendy neighborhoods in Manhattan accounted for 30% of units booked as private rentals on AirBnB.com, according to information subpoenaed by New York Attorney General (AG) Eric T. Schneiderman that Airbnb fought against releasing.

Those neighborhoods include the Lower East Side, Chinatown, Chelsea, Hells Kitchen, Greenwich Village and SoHo. “Removing rental units from the marketplace by operating them as illegal hotels damages the availability of housing,” said Roxanne Earley, a blogger with the Association for Neighborhood & Housing Development (ANHD).

Another tidbit from the AG’s report based on subpoenaed records is that commercial users of the home-sharing website collected $168 million in rent last year, controlled one in five AirBnb units and one in three bookings. “Although Airbnb is marketing itself as a company that helps the majority of its hosts make some extra money to keep their homes, the reality is that a multi-billion dollar business is helping a small portion of commercial users rake in a disproportionate amount of profit,” Earley told MainStreet.

“The markup on short-term rentals is much higher than that of long-term residential use of apartments and this has resulted in landlords breaking the law and using their units, sometimes whole buildings as illegal hotels,” said Earley.

And that’s eating into affordable housing units that city residents could be living in. “Commercial users earn an incredible markup on short term rentals and take units that may otherwise be affordable off of the market for long term occupancy,” Earley said.

The existence of rent regulation is unique to cities like New York and San Francisco and further complicates the Airbnb factor. Administered by a court or public authority, rent regulation limits the changes in price that can be attached to renting a home, which balances the negotiating power of landlord to tenant.

“If rent regulated apartments become profit-centers, tenants may also be incentivized to hang on to their apartments longer than they would otherwise, negatively impacting the availability of affordable housing for those who would use it purely for their own personal residence,” said David Reiss, professor at Brooklyn Law School.

 

November 7, 2014 | Permalink | No Comments

November 6, 2014

NYC’s Changing Neighborhood Demographics

By David Reiss

The Citizens Housing Planning Council has released a cool interactive map of NYC, Making Neighborhoods.  It “follows change across the city by putting people at the center of analysis. Our work measures and visualizes the movements of groups of New Yorkers who share demographic characteristics.”

The press release continues,

The project uses cluster analysis methodology–common in economic or marketing studies–to form 14 distinct groups, or “population clusters,” and follow their locations in 2000 and 2010. By comparing the two years, we can see which population types grew in number or geographic size, or moved into new areas; if their numbers declined or they retreated from their neighborhoods and were replaced by others; or if groups remained relatively unchanged in a decade. By following groups of people with shared characteristics, we see a different portrait of a changing city. It is one that New Yorkers will recognize, as it reflects the neighborhoods they make for themselves.

Making Neighborhoods stands out among neighborhood-level research being done today in two ways. First, it ignores government-drawn boundary lines like community districts and sub-borough areas, which often obscure important patterns that cross these borders. Second, it captures intersectional change: rather than measuring individual changes in income, race, education type, and so on, this study shows changes in all of those dimensions.

Our work on this project includes three main outputs. First, a full academic paper details the research methods, the cluster traits, their changes over the study period, and policy implications. We also created a report that summarizes and draws out the highlights of the full-length paper. Finally, we created–with help from Van Dam, Inc.–interactive maps that communicate this fairly complex study in a stunning visualization.

In addition to distilling five overarching trends from the population cluster changes, CHPC and lead researcher Raisa Bahchieva performed an analysis of housing distress citywide. By measuring and locating the filing of lis pendens notices and housing code violations, we are able to see which population clusters are experiencing mortgage foreclosure or poor housing, respectively.

This is another cool mapping tool that helps to make sense of NYC’s complex geographic, political and social environment.

November 6, 2014 | Permalink | No Comments

November 5, 2014

GSE Nationalization and Necessity

By David Reiss

Nestor Davidson has posted Nationalization and Necessity: Takings and a Doctrine of Economic Emergency to SSRN. This essay will be of interest to those following the Fannie/Freddie shareholder litigation. The abstract reads,

Serious economic crises have recurred with regularity throughout our history. So too have government takeovers of failing private companies in response, and the downturn of the last decade was no exception. At the height of the crisis, the federal government nationalized several of the country’s largest private enterprises. Recently, shareholders in these firms have sued the federal government, arguing that the takeovers constituted a taking of their property without just compensation in violation of the Fifth Amendment. This Essay argues that for the owners of companies whose failure would raise acute economic spillovers, nationalization without the obligation to pay just compensation should be recognized as a natural extension of the doctrine of emergency in takings. Public officials must be able to respond quickly to serious economic threats, no less than when facing the kinds of imminent physical or public health crises — such as wildfires and contagion — that have been a staple of traditional takings jurisprudence. Far from an affront to the rule of law, this reflection of necessity through an extension of emergency doctrine would reaffirm the flexibility inherent in property law in times of crisis.

Davidson looks at the various companies that were nationalized during the financial crisis, including Fannie and Freddie, and concludes,

It does no violence to norms of ownership—or the rule of law—to acknowledge that overriding necessity in times of crisis can be as relevant to economic emergency as it has always been to more prosaic threats. The doctrine of economic emergency that this Essay has proposed accords with the deepest traditions of our system of property, and rightly should be so recognized. (215)

 

Davidson reaches a very different conclusion than does Richard Epstein, who argues that just compensation is warranted for shareholders in the two companies. I have no doubt that the judges deciding these cases will have to struggle with very same issues that Davidson sets forth in this article, so it is worth a read for those who are closely following these cases.

November 5, 2014 | Permalink | No Comments

November 4, 2014

Regulation and Housing Supply

By David Reiss

Gyourko and Molloy have posted Regulation and Housing Supply to SSRN.  Unfortunately, it is behind a paywall (although it is also available at NBER if your library has access and an earlier draft can be found here). The abstract of this book chapter states that it reviews the scholarly literature on the causes and effects of local government regulation that “influences the amount, location, and shape of residential development.” The abstract continues,

We begin with a discussion of how researchers measure regulation empirically, which highlights the variety of methods that are used to constrain development. Many theories have been developed to explain why regulation arises, including the role of homeowners in the local political process, the influence of historical density, and the fiscal and exclusionary motives for zoning. As for the effects of regulation, most studies have found substantial effects on the housing market. In particular, regulation appears to raise house prices, reduce construction, reduce the elasticity of housing supply, and alter urban form. Other research has found that regulation influences local labor markets, and household sorting across communities. Finally, we discuss the welfare implications of regulation. Although the large positive externalities of some specific rules are clear, the benefits of more general forms of regulation are very difficult to quantify. On balance, a few recent studies suggest that the overall efficiency losses from binding constraints on residential development could be quite large.
Land use geeks are familiar with Gyourko’s analysis of land use regulation, but many non-economists are not.  Even if they are, they often give it short shrift. I found the extension of their analysis beyond the borders of the U.S. interesting:
In theory, the availability of buildable land might not constrain the supply of housing units if housing could be constructed as densely as necessary to meet demand. But in most places in the U.S.—and indeed around the world—local land use policy imposes limits on residential development that restrict the size and type of housing units that can be built on a given amount of land. These restrictions add extra costs to a construction project, creating a wedge between the sales price of a house and the cost of buying the land and building the structure. (3)
As communities struggle with housing affordability, the link between land use regulation and housing costs is one that should not be ignored.

November 4, 2014 | Permalink | No Comments

November 3, 2014

Housing Opportunity for Kids

By David Reiss

The Center for Budget and Policy Priorities issued a report, Creating Opportunity for Children: How Housing Location Can Make a Difference. There is some research on the positive effects that homeownership has on outcomes for children. But it is hard to determine whether it is homeownership per se which causes the positive effects as opposed to a stable housing situation more generally. Thus, further research on the role of stable housing options, like that found in this report, is quite welcome.  This report finds that the Housing Choice Voucher program

has performed much better than HUD’s project-based rental assistance programs in enabling more low-income families with children—and particularly more African American and Latino families—to live in lower-poverty neighborhoods. . . . Having a housing voucher also substantially reduces the likelihood of living in an extreme-poverty neighborhood, compared with similar families with children that either receive project-based rental assistance or don’t receive housing assistance at all. (6)
The report concludes that

Based on the evidence on how housing location affects low-income families, particularly children, and the performance of federal rental assistance programs on location-related measures, we recommend two closely related near-term goals for federal rental assistance policy: 1) federal rental assistance programs should provide greater opportunities for families to choose affordable housing outside of extreme-poverty neighborhoods; and 2) the programs should provide better access for families to low-poverty, safe communities with better-performing schools. (7)
The report also recommends four policy changes to achieve these goals:
  1. Create strong incentives for local and state housing agencies to achieve better location outcomes.
  2. Modify policies that discourage families from living in lower-poverty communities.
  3. Minimize jurisdictional barriers to families’ ability to choose to live in high-opportunity communities.
  4. Assist families in using vouchers to live in high-opportunity areas. (7-8)

This is a pretty hefty report and it is worth digging into more deeply.

November 3, 2014 | Permalink | No Comments

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