November 8, 2017
Regulatory Approaches to Airbnb
Peter Coles et al. have posted Airbnb Usage Across New York City Neighborhoods: Geographic Patterns and Regulatory Implications to SSRN. Two of the co-authors are affiliated to Airbnb and the other three are affiliated to NYU. The paper states that “No consulting fees, research grants or other payments have been made by Airbnb to the NYU authors . . .” (1) The abstract reads,
This paper offers new empirical evidence about actual Airbnb usage patterns and how they vary across neighborhoods in New York City. We combine unique, census-tract level data from Airbnb with neighborhood asking rent data from Zillow and administrative, census, and social media data on neighborhoods. We find that as usage has grown over time, Airbnb listings have become more geographically dispersed, although centrality remains an important predictor of listing location. Neighborhoods with more modest median household incomes have also grown in popularity, and disproportionately feature “private room” listings (compared to “entire home” listings). We find that compared to long-term rentals, short-term rentals do not appear to be as profitable as many assume, and they have become relatively less profitable over our time period. Additionally, short-term rentals appear most profitable relative to long-term rentals in outlying, middle-income neighborhoods. Our findings contribute to an ongoing regulatory conversation catalyzed by the rapid growth in the short-term rental market, and we conclude by bringing an economic lens to varying approaches proposed to target and address externalities that may arise in this market.
I found the review alternative regulatory approaches to be particularly helpful:
City leaders around the world have adopted a wide range of approaches. We conclude by reviewing these alternative regulatory responses. We consider both citywide as well as neighborhood-specific responses, like those recently enacted in Portland, Maine or in New Orleans. A promising approach from an economic perspective is to impose fees that vary with intensity of usage. For instance, in Portland, Maine, short-term rental host fees increase with the number of units a given host seeks to register, and a recent bill from Representatives in the Commonwealth of Massachusetts (H.3454) propose taxes that vary with the intensity of usage of individual units. Such varying fees may help discourage conversions of long-term rentals to short-term rentals and better internalize externalities that might rise with greater use. That said, overly-customized approaches may be difficult to administer. Regulatory complexity itself should also be a criterion in choosing policy responses. (2-3, citations omitted)
We are still a long ways off from knowing how the short-term rental market will be regulated once it fully matures, so work like this helps us see where we are so far.
November 8, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- We Should Continue to Provide a Tax Break for Gains on the Sale of Owner-Occupied Houses (As N. Harold Buchanan), Buchanan
- Enhancing Affordability of Roof-Top Solar Using Communications, Jhunjhunwala and Kaur
- Seizing Family Homes from the Innocent: Can the Eighth Amendment Protect Minorities and the Poor from Excessive Punishment in Civil Forfeiture?, Rulli
- Quality Uncertainty in Housing Markets, Martel
November 8, 2017 | Permalink | No Comments
November 7, 2017
Insuring Sustainable Housing
I posted Insuring Sustainable Housing to SSRN (and BePress). The abstract reads,
Today’s FHA suffered from many of the same unrealistic underwriting assumptions that have done in so many lenders during the 2000s. It had also been harmed, like other lenders, by a housing market as bad as any seen since the Great Depression. As a result, the federal government announced in 2013 that the FHA would require the first bailout in its history. At the same time that it faced these financial challenges, the FHA has also come under attack for the poor execution of some of its policies to expand homeownership. Leading commentators have called for the federal government to stop employing the FHA to do anything other than provide liquidity to the low end of the mortgage market. These arguments rely on a couple of examples of programs that were clearly failures but they fail to address the FHA’s long history of undertaking comparable initiatives. This article takes the long view and demonstrates that the FHA has a history of successfully undertaking new homeownership programs. At the same time, the article identifies flaws in the FHA model that should be addressed in order to prevent them from occurring if the FHA were to undertake similar initiatives in the future.
This short article is drawn from Underwriting Sustainable Homeownership: The Federal Housing Administration and The Low Down Payment Loan, 50 GA. L. REV. 1019 (2016).
November 7, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- Though the Trump Administration is aiming to dethrone Consumer Financial Protection Bureau’s leader, Richard Cordray. Cordray recently was found not guilty for his alleged Hatch Act violation. As a result, the Trump administration will have to determine another way to eject Cordray from office. Furthermore, the Office of Special Counsel found no evidence to convict Cordray of a violation.
- The Republican’s Tax Reform plan will not pass without a fight. Tax cuts and the Jobs Act will reek havoc on the mortgage industry by decreasing mortgage interest deductions and reducing the time-frames in which a homeowner may claim a capital gains exemption. According to critics, the impact will affect California more than any other state.
November 7, 2017 | Permalink | No Comments
November 6, 2017
A Shortage of Short Sales
Calvin Zhang of the Federal Reserve Bank of Philadelphia has posted A Shortage of Short Sales: Explaining the Under-Utilization of a Foreclosure Alternative to SSRN. The abstract reads,
The Great Recession led to widespread mortgage defaults, with borrowers resorting to both foreclosures and short sales to resolve their defaults. I first quantify the economic impact of foreclosures relative to short sales by comparing the home price implications of both. After accounting for omitted variable bias, I find that homes selling as a short sale transact at 8.5% higher prices on average than those that sell after foreclosure. Short sales also exert smaller negative externalities than foreclosures, with one short sale decreasing nearby property values by one percentage point less than a foreclosure. So why weren’t short sales more prevalent? These home-price benefits did not increase the prevalence of short sales because free rents during foreclosures caused more borrowers to select foreclosures, even though higher advances led servicers to prefer more short sales. In states with longer foreclosure timelines, the benefits from foreclosures increased for borrowers, so short sales were less utilized. I find that one standard deviation increase in the average length of the foreclosure process decreased the short sale share by 0.35-0.45 standard deviation. My results suggest that policies that increase the relative attractiveness of short sales could help stabilize distressed housing markets.
The paper highlights the importance of aligning incentives in the mortgage market among lenders, investors, servicers and borrowers. Zhang makes this clear in his conclusion:
While these individual results seem small in magnitude, the total economic impact is big because of how large the real estate market is. A back-of-the-envelope calculation suggests that having 5% more short sales than foreclosures would have saved up to $5.8 billion in housing wealth between 2007 and 2011. Thus, there needs to be more incentives for short sales to be done. The government and GSEs already began encouraging short sales by offering programs like HAFA [Home Affordable Foreclosure Alternatives] starting in 2009 to increase the benefits of short sales for both the borrower and the servicer, but more could be done such as decreasing foreclosure timelines. If we can continue to increase the incentives to do short sales so that they become more popular than foreclosures, future housing downturns may not be as extreme or last as long. (29)
November 6, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- Three non-tribal couples attempted to challenge Washington’s property tax; however, a federal judge dismissed the claims due to the state’s lack of enforcement. Further, the couple has not attempted to use their tribe’s tribunal system nor any administrative process. As support for their claims, the couples cite the marketability of their homes.
- Two men pled guilty to their role in a scheme to defraud banks which yielded the pair $3.5 million in illegally earned income. Simon Curanaj, 62 and Michael Arruoyo, 59 pled guilty in a federal court in the first week of November. Their cunning scheme entailed obtaining home equity loans from banks, a practice known as “shotgunning.”
- Moody’s Investor Service Inc.(Moody’s) is back in federal court for their ratings on mortgage-backed-securities which misled investors and consumers. Federal Home Loan Bank of Boston, re-initiated a suit against Moody alleging the entity falsely stated “the quality of $5.7 billion in risky mortgage-backed securities.“
November 6, 2017 | Permalink | No Comments
November 3, 2017
Republicans and the Mortgage Interest Deduction
There is a lot to hate in the Republican tax reform plan contained in the proposed Tax Cuts and Jobs Act. (click here for a summary and here for the text of the bill itself). Overall, the bill is extraordinarily regressive, heavily favoring the wealthy. There will, of course, be all sorts of compromises to this proposal as Republicans work to get it passed. But it is worth highlighting what is good about the bill as it would be a shame to lose sight of it while the sausage is being made in Congress.
The best real-estate related provision from a policy perspective is the reduction of the mortgage interest deduction. In a section of the summary with the Orwellian title, Preserving the Mortgage Interest Deduction, the Republicans outline how they will slice the deduction in half:
For so many Americans, buying a home is often the largest investment – and perhaps most important – investment they will make in their lifetime.
The Tax Cuts and Jobs Act will continue to support the American dream of homeownership by preserving the Mortgage Interest Deduction.
This ensures that hardworking families can continue to access this important tax relief as they buy, own, and maintain their home.
Policy Specifics
• Increasing the standard deduction means a simpler, fairer, and flatter tax code in which fewer taxpayers need to go through the trouble of determining whether they should itemize.
• Under the Tax Cuts and Jobs Act, taxpayers will still be able to deduct mortgage interest in excess of the standard deduction, in combination with other remaining itemized deductions, including charitable contributions and property taxes.
• The mortgage interest deduction would be available for interest paid on new mortgages for up to $500,000 in home acquisition indebtedness on principal residences.
• For existing mortgages, the plan allows for current law deduction on indebtedness of up to $1,000,000 and up to $100,000 in home equity to help taxpayers who may have relied on the current mortgage-interest deduction.
How This Policy Helps the American People
Preserving the home mortgage – and the deduction for state and local property taxes – will help more Americans of all income levels achieve the American dream of homeownership. (15-16)
This plan would cut the principal amount of a mortgage that would be eligible for the mortgage interest deduction from the current maximum of $1,000,000 to $500,000. Given that wealthy households generally take the mortgage interest deduction more often and get more bang for their buck from it, it is a regressive aspect of the tax code.
It is striking that a provision with such broad support such as the mortgage interest deduction is actually on the table. It will be interesting to see how special interests in the real estate industry will respond. My bet is that at the end of day the deduction will remain mostly untouched, even though this particular Republican proposal makes good policy sense.
November 3, 2017 | Permalink | No Comments
