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Three Essays on Housing Returns

Liu, Lexian
http://rave.ohiolink.edu/etdc/view?acc_num=osu1243826860

Abstract Details

2009, Doctor of Philosophy, Ohio State University, Economics.
My research focuses on issues related to housing returns in the U.S. housing market. The first essay, "Explaining the Variance of the House Price Appreciation Rate" is motivated by an interesting geographic pattern in the variance of house price appreciation rate across the United States. Specifically, I find that the variance of the house price appreciation rate (or housing returns) is significantly higher along the coastal areas than inland areas of the United States. This paper investigates the geographic pattern both theoretically and empirically. The theoretical model of this paper is founded on the monocentric urban area model developed by Capozza and Helsley (1988 & 1990). Based on extensions to this model, the relationships between the variance of the house price appreciation rate and exogenous variables related to the urban economy are identified. My empirical results are largely consistent with the model's predictions. In particular, I show that the variance of housing returns is significantly and positively related to the variance of household income, the degree of land regulation (or growth control), land leverage, and transportation costs in each MSA. The second essay, "Skewness of the Housing Returns and Housing Tenure Choice" focuses on the third moment of the housing returns and investigates its influence on a household's tenure choice (the choice between owning and renting). In the finance literature, it is generally accepted that, holding the mean and variance of the returns constant, risk-averse households have a preference for financial investments with positively skewed returns. Homes are a large investment for most American families and thus I examine in this paper whether the preference for a positive skewness also exists in the housing market. Based on the model of housing tenure choice developed by Henderson & Ioannides (1983) and Fu (1995), I derive the relationship between housing tenure choice and the skewness of housing returns. The empirical investigation supports my theoretical conjecture that the skewness of housing returns is positively related to a household's likelihood of being a home owner. The third essay, "A Spatial Econometric Approach to MSA Level Housing Returns" employs newly developed spatial panel data models to investigate the spillover mechanism in the U.S. housing market, focusing on determining whether housing returns are more highly correlated among geographically nearby cities or among cities that are economically similar. Two different weight matrices are integrated into the spatial econometric model; the first weight matrix is constructed based on geographic distances among MSAs and the second matrix uses measures of economic similarities among cities. My empirical regression results show that both the inter-MSA spatial correlations in housing returns are significant and positive, but with the geographic correlation appearing to be stronger and more significant than the correlation based on economic similarities. The empirical investigation also provide evidences that housing prices changes in one MSA area are correlated not only to their own lagged changes, but also correlated to the present and lagged housing prices changes in their neighboring or similar MSAs.
Donald Haurin (Committee Chair)
Lixin Ye (Committee Member)
Bruce Weinberg (Committee Member)
116 p.
Economics
House Price Appreciation Rate; Housing Returns; Growth Controls; Land Leverage; Skewness; Housing Tenure Choice; Spatial Correlation

Recommended Citations

Citations

  • Liu, L. (2009). Three Essays on Housing Returns [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1243826860

    APA Style (7th edition)

  • Liu, Lexian. Three Essays on Housing Returns. 2009. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1243826860.

    MLA Style (8th edition)

  • Liu, Lexian. "Three Essays on Housing Returns." Doctoral dissertation, Ohio State University, 2009. http://rave.ohiolink.edu/etdc/view?acc_num=osu1243826860

    Chicago Manual of Style (17th edition)

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© 2009, all rights reserved.
This open access ETD is published by The Ohio State University and OhioLINK.