Journal of Risk and Financial Management

Research

17 pages, 3922 KiB

Open AccessArticle

Hedonic Models Incorporating Environmental, Social, and Governance Factors for Time Series of Average Annual Home Prices

by Jason R. Bailey, W. Brent Lindquist and Svetlozar T. Rachev

J. Risk Financial Manag. 2024, 17(8), 375; https://doi.org/10.3390/jrfm17080375 - 21 Aug 2024

Viewed by 653

Abstract

Using data from 2000 through 2022, we analyze the predictive capability of the annual numbers of new home constructions and four available environmental, social, and governance (ESG) factors on the average annual price of homes sold in eight major U.S. cities. We contrast [...] Read more.

Using data from 2000 through 2022, we analyze the predictive capability of the annual numbers of new home constructions and four available environmental, social, and governance (ESG) factors on the average annual price of homes sold in eight major U.S. cities. We contrast the predictive capability of a P-spline generalized additive model (GAM) against a strictly linear version of the commonly used generalized linear model (GLM). As the data for the annual price and predictor variables constitute non-stationary time series, we transform each time series appropriately to produce stationary series for use in the GAMs and GLMs in order to avoid spurious correlations in the analysis. While arithmetic returns or first differences are adequate transformations for the predictor variables, we utilize the series of innovations obtained from AR(q)-ARCH(1) fits for the average price response variable. Based on the GAM results, we find that the influence of ESG factors varies markedly by city and reflects geographic diversity. Notably, the presence of air conditioning emerges as a strong factor. Despite limitations on the length of available time series, this study represents a pivotal step toward integrating ESG considerations into predictive time series models for real estates. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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34 pages, 2474 KiB

Open AccessArticle

Understanding the Effects of Market Volatility on Profitability Perceptions of Housing Market Developers

by Shahab Valaei Sharif, Dawn Cassandra Parker, Paul Waddell and Ted Tsiakopoulos

J. Risk Financial Manag. 2023, 16(10), 446; https://doi.org/10.3390/jrfm16100446 - 16 Oct 2023

Viewed by 4226

Abstract

Drastic shifts in prices and housing market trends in recent years, representing shocks to the housing system, have led many residential developers to pause or cancel their projects. In the already heated housing markets of the Greater Toronto Area (GTA), these supply frictions [...] Read more.

Drastic shifts in prices and housing market trends in recent years, representing shocks to the housing system, have led many residential developers to pause or cancel their projects. In the already heated housing markets of the Greater Toronto Area (GTA), these supply frictions can have ramifications for affordability. Our study formulates a standardized “proforma” model of the profitability of a hypothetical condominium project in the city of Toronto, Canada, scheduled between 2019 to 2023, to explore the combined effect of developers’ price expectations and market volatility on developers’ decisions. Using the proposed proforma, we first identify the key drivers of development decisions. We then evaluate the impact of the expectation formation of key factors influencing perceived development profitability, including construction costs, sales prices, and interest rates, on the financial feasibility of potential developments. The results highlight that boundedly rational expectations can cause variations in profitability perceptions and potentially reverse development decisions in volatile market conditions. Our results highlight the sources of risk and uncertainty in development decisions, facilitating the recognition of possible solutions to mitigate these risks and increase affordable housing supplies. The proposed model can also enhance the realism of decision models in agent-based representations of land and housing markets. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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20 pages, 637 KiB

Open AccessArticle

Enabling Private Investment in Affordable Housing in Nigeria: Lessons from the Experience of the Millard Fuller Foundation Projects in Nasarawa State

by Lilian Nwachukwu, Lucelia Rodrigues and Lorna Kiamba

J. Risk Financial Manag. 2023, 16(9), 411; https://doi.org/10.3390/jrfm16090411 - 14 Sep 2023

Viewed by 2039

Abstract

Despite the shift to private sector-driven affordable housing in Nigeria for decades, the housing deficit has continued to increase to the disadvantage of low-income families. This paper explores the enabling strategies for stimulating private-driven affordable housing in Nigeria. A case study of the [...] Read more.

Despite the shift to private sector-driven affordable housing in Nigeria for decades, the housing deficit has continued to increase to the disadvantage of low-income families. This paper explores the enabling strategies for stimulating private-driven affordable housing in Nigeria. A case study of the Millard Fuller Foundation projects was undertaken, and semi-structured interviews were administered to 12 residents of the estates and the developer to explore their experience and highlight the considerations for designing appropriate strategies. The data generated were analysed using thematic analysis with the support of Nvivo. This study identifies four major components of construction costs—land, design, materials, and finance—that policy improvement can target to stimulate private investment. It shows that developers are likely to adopt practices that will reduce these costs with repercussions for end-users. Mindful of this, and the concern to make returns on investment, strategies should aim to harmonise both developers’ interest and that of the end-users through widespread infrastructural development to make land available in all locations, and an incremental owner-building approach so that end-users can take decisions for their housing. Furthermore, access to National Housing Fund (NHF) mortgages should be enhanced by recognising supplementary incomes in the loan origination procedures. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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17 pages, 3741 KiB

Open AccessArticle

Delineating Housing Submarkets Using Space–Time House Sales Data: Spatially Constrained Data-Driven Approaches

by Meifang Chen, Yongwan Chun and Daniel A. Griffith

J. Risk Financial Manag. 2023, 16(6), 291; https://doi.org/10.3390/jrfm16060291 - 2 Jun 2023

Cited by 2 | Viewed by 1767

Abstract

With the increasing availability of large volumes of space–time house data, delineating space–time housing submarkets is of interest to real estate agents, homebuyers, urban policymakers, and spatial researchers, among others. Appropriately delineated housing submarkets can help nurture submarket monitoring and housing policy developments. [...] Read more.

With the increasing availability of large volumes of space–time house data, delineating space–time housing submarkets is of interest to real estate agents, homebuyers, urban policymakers, and spatial researchers, among others. Appropriately delineated housing submarkets can help nurture submarket monitoring and housing policy developments. Although submarkets are often expected to represent areas with similar houses, neighborhoods, and amenities characteristics, delineating spatially contiguous areas with virtually no fragmented small areas remains challenging. Furthermore, housing submarkets can potentially change over time along with concomitant urban transformations, such as urban sprawl, gentrification, and infrastructure improvements, even in large metropolitan areas, which can complicate delineating submarkets with data for lengthy time periods. This study proposes a new method for integrating a random effects model with spatially constrained data-driven approaches in order to identify stable and reliable space–time housing submarkets, instead of their dynamic changes. This random effects model specification is expected to capture time-invariant spatial patterns, which can help identify stable submarkets over time. It highlights two spatially constrained data-driven approaches, ClustGeo and REDCAP, which perform equally well and produce similar space–time housing submarket structures. This proposed method is utilized for a case study of Franklin County, Ohio, using 19 years of space–time private house transaction data (2001–2019). A comparative analysis using a hedonic model demonstrates that the resulting submarkets generated by the proposed method perform better than popular alternative submarket creators in terms of model performances and house price predictions. Enhanced space–time housing delineation can furnish a way to better understand the sophisticated housing market structures, and to help enhance their modeling and housing policy. This paper contributes to the literature on space–time housing submarket delineations with enhanced approaches to effectively generate spatially constrained housing submarkets using data-driven methods. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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25 pages, 2659 KiB

Open AccessArticle

Exploring the Effects of Municipal Land and Building Policies on Apartment Size in New Residential Construction in Sweden

by Sviatlana Engerstam, Abukar Warsame and Mats Wilhelmsson

J. Risk Financial Manag. 2023, 16(4), 220; https://doi.org/10.3390/jrfm16040220 - 1 Apr 2023

Cited by 2 | Viewed by 1687

Abstract

New residential construction in many countries with rapid urban growth is often interrelated with smaller housing units being built. Sweden is not an exception. It is of interest to investigate the driving forces behind this tendency. Our presumption is that municipal land price [...] Read more.

New residential construction in many countries with rapid urban growth is often interrelated with smaller housing units being built. Sweden is not an exception. It is of interest to investigate the driving forces behind this tendency. Our presumption is that municipal land price policies and building permit regulations might play a certain role in this process. Contrary to previous studies that focus on the number of new dwelling units in housing construction, our purpose is to analyze the average size of new housing units and the factors that affect it on an aggregate level. We apply seemingly unrelated regressions for analysis of the average apartment size in new residential construction in the three largest metropolitan regions in Sweden as a function of the changes in population, apartment rent and prices, mortgage interest rates, land prices, and building permits per capita as a proxy for regulation. The unbalanced panel dataset includes the period between 1998 and 2017 and covers both the rental and the housing cooperative sectors. The analysis demonstrates that land prices and building policies along with market fundamentals are the underlying factors that affect the average size of an apartment in new residential construction in Sweden. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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10 pages, 1315 KiB

Open AccessArticle

The Effect of Proximity to Universities on House Prices after the COVID Outbreak

by Bingbing Wang

J. Risk Financial Manag. 2023, 16(3), 167; https://doi.org/10.3390/jrfm16030167 - 2 Mar 2023

Viewed by 1885

Abstract

COVID-19 has made virtual interactions an integral part of learning modes. This made it possible for college students to live further away from school than before, which might change the house price neighboring universities. This article studies the effect of proximity to school [...] Read more.

COVID-19 has made virtual interactions an integral part of learning modes. This made it possible for college students to live further away from school than before, which might change the house price neighboring universities. This article studies the effect of proximity to school on house prices after the COVID-19 outbreak using a non-parametric difference-in-differences approach with property-level transaction data surrounding 128 universities in the U.S. The results show that house prices within 0.5 miles of universities experienced a maximum decrease of approximately 7% after three months of the outbreak. The effects vary for universities that implemented different teaching modes of in-person, hybrid, and online. Since house prices are important indicators for local economic conditions, the results help local homeowners, investors, and governments in their decision-making processes. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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18 pages, 2204 KiB

Open AccessArticle

What Can District Migration Rates Tell Us about London’s Functional Urban Area?

by David Gray

J. Risk Financial Manag. 2023, 16(2), 89; https://doi.org/10.3390/jrfm16020089 - 2 Feb 2023

Cited by 2 | Viewed by 1756

Abstract

In the early 1990s, Anthony Fielding coined the term ‘escalator region’ to describe how London and the South East attracted those with greater human capital by offering them superior career prospects and enhanced returns in the housing markets. When delineating a housing or [...] Read more.

In the early 1990s, Anthony Fielding coined the term ‘escalator region’ to describe how London and the South East attracted those with greater human capital by offering them superior career prospects and enhanced returns in the housing markets. When delineating a housing or labour market area, it is not uncommon to require high levels of migration and commuting within the market area relative to those that cross the area’s boundaries. Net migration flows to and from this escalator region change depending on the age range one examines, making migration across boundaries relatively high. It is proposed that focusing on age ranges that reflect younger adults would capture the extent of the market. In particular, the birth of a first child is likely to trigger migration, but that movement is constrained to be within the boundary of the market area. The decision to buy a dwelling would be made around the time of this event. This paper delineates market areas using spatial autocorrelation. This has the advantage of using a statistical criterion rather than a containment value. Broadly similar areas in the Greater South East are revealed using relative housing affordability measures, the movement of infants and the migration of 20- to 24-year-olds. It is argued that the time-varying patterns of migration of 30- to 39-year-olds is reflective of a change in housing affordability, forcing more households to migrate with children whilst renting. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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16 pages, 1263 KiB

Open AccessArticle

A Natural Quasi-Experiment of the Monetary Policy Shocks on the Housing Markets of New Zealand during COVID-19

by Chung Yim Yiu

J. Risk Financial Manag. 2023, 16(2), 73; https://doi.org/10.3390/jrfm16020073 - 25 Jan 2023

Cited by 2 | Viewed by 3727

Abstract

It is hard to experimentally test the impacts of monetary policy shocks on housing markets as it is very unlikely for a central bank to change monetary policies swiftly twice within a short period of time for exogenous reasons. However, during the pandemic, [...] Read more.

It is hard to experimentally test the impacts of monetary policy shocks on housing markets as it is very unlikely for a central bank to change monetary policies swiftly twice within a short period of time for exogenous reasons. However, during the pandemic, the central bank of New Zealand changed its policies 180 degree in 2 years, from an unprecedented low interest rate and a relaxed mortgage policy in 2020 to a 13-year record high interest rate and a tightened mortgage policy in 2022. Among the OECD members, New Zealand is the country that increased the interest rate the earliest and also the country that had its house prices fall the earliest. It provides natural quasi-experiments to test the monetary policy hypothesis empirically by the two policy changes as treatments on house prices. This study conducts a time series regression analysis on the housing markets of New Zealand to test the hypothesis in the pre-COVID and the COVID periods, ranging from 2016 Q2 to 2022 Q3. The results confirm that mortgage rates have a negative and significant effect on house price changes after controlling for the economic growth factor and the housing supply factor, no matter whether the monetary policy switches to expansionary or contractionary mode. The robustness test results of the housing markets show that a 1% fall/rise in the mortgage rate caused a 5.6% increase/decrease in house prices, ceteris paribus, in the COVID period. The results also do not support the housing supply hypothesis in New Zealand. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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13 pages, 3012 KiB

Open AccessArticle

Housing Price and Interest Rate Hike: A Tale of Five Cities in Australia

by Fennee Chong

J. Risk Financial Manag. 2023, 16(2), 61; https://doi.org/10.3390/jrfm16020061 - 18 Jan 2023

Cited by 2 | Viewed by 5356

Abstract

Australian housing prices are reported to be overvalued and unaffordable for the past two decades. Many researchers and practitioners have attributed the persistent growth in housing prices to the prolonged period of low borrowing costs. However, due to inflationary pressure, the Central Bank [...] Read more.

Australian housing prices are reported to be overvalued and unaffordable for the past two decades. Many researchers and practitioners have attributed the persistent growth in housing prices to the prolonged period of low borrowing costs. However, due to inflationary pressure, the Central Bank has raised its cash rate consecutively in recent months. This paper aims to examine whether interest rate rises affect housing price in different parts of Australia. Evidence generated from the analysis reported bipolar results between the large and smaller cities, whereby housing prices in Sydney and Melbourne show a significant negative relationship with interest rate changes while Brisbane and the Gold Coast and Perth and Adelaide, respectively, are showing negative but insignificant results during the study period. Short-run trend projections on housing prices indicate that Sydney, Melbourne, Brisbane and the Gold Coast are on a downward trend while Adelaide and Perth will maintain its current momentum before plateauing out later next year. Likewise, control variables, such as oil prices, inflation rate and stock market performance, are found to be related to housing prices in larger cities only. These findings have implications on housing policy, house purchase decisions and investment portfolio management strategy. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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18 pages, 1405 KiB

Open AccessArticle

The Impact of the 2008 Financial Crisis on Lisbon’s Housing Prices

by João Fragoso Januário and Carlos Oliveira Cruz

J. Risk Financial Manag. 2023, 16(1), 46; https://doi.org/10.3390/jrfm16010046 - 12 Jan 2023

Cited by 7 | Viewed by 4928

Abstract

Real estate markets are frequently affected by growth and contraction cycles. Given the social and economic impacts of changes on real estate prices, the understanding of these cycles is crucial from a socio-economic perspective, but also, and more importantly, from a public policy [...] Read more.

Real estate markets are frequently affected by growth and contraction cycles. Given the social and economic impacts of changes on real estate prices, the understanding of these cycles is crucial from a socio-economic perspective, but also, and more importantly, from a public policy view. The literature has provided several contributions focusing on the deconstruction of the main determinants of housing prices. This research focuses on the analysis of housing prices variation with a particular emphasis on the analysis of the impacts of the 2008 financial crisis. Within the existing body of knowledge, few studies have focused on this particular issue, and even fewer have focused on countries where the financial crisis led to an external bailout, as was the case in Portugal. The analysis confirmed that the 2008 financial crisis had a negative impact on real estate prices, and the ex-post growth in GDP and low interest rates had a positive impact. The paper also provides a long-term analysis of housing price trends over the last decades. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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12 pages, 325 KiB

Open AccessArticle

Housing Affordability, Public Policy and Economic Dynamics: An Analysis of the City of Lisbon

by Miguel Lorga, João Fragoso Januário and Carlos Oliveira Cruz

J. Risk Financial Manag. 2022, 15(12), 560; https://doi.org/10.3390/jrfm15120560 - 28 Nov 2022

Cited by 6 | Viewed by 3131

Abstract

The increasing growth of population living in cities, associated with the commoditization of investment in real estate, has impacted real estate prices and created obstacles for average income families to meet their housing needs. This problem is generalized to virtually all cities, but [...] Read more.

The increasing growth of population living in cities, associated with the commoditization of investment in real estate, has impacted real estate prices and created obstacles for average income families to meet their housing needs. This problem is generalized to virtually all cities, but it has assumed larger proportions in cities where economic activities (tourism, financial services, high-tech industry) have flourished after the financial crisis. Lisbon is one of those cases. The growth of short-term rentals led to an increase in the property prices well above the average income growth, eroding housing affordability. This paper will focus on analyzing Lisbon´s affordability and understanding its main determinants. The analysis is carried out from the compilation and processing of data from 2004 to 2019, in the context of the municipality of Lisbon, using statistical instruments of linear regression in an exploratory and predictive approach. The results suggest a great influence of factors such as tourism, the foreign population with resident status, the propagation of short-term rentals and public policies on the worsening of housing affordability. In view of these conclusions, the preponderance of the type of public policies implemented and their relationship with the most prominent factors on housing affordability is debated. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

22 pages, 1601 KiB

Open AccessArticle

A Time Series Analysis of Judicial Foreclosures in Spain

by Rafael González-Val

J. Risk Financial Manag. 2022, 15(10), 472; https://doi.org/10.3390/jrfm15100472 - 18 Oct 2022

Cited by 1 | Viewed by 1692

Abstract

There was an unprecedented wave of foreclosures and evictions in Spain after the 2008 global financial crisis. The subsequent Great Recession had strong economic, social and environmental consequences. This paper explores the frequency of permanent shocks in foreclosure quarterly rates (defined as the [...] Read more.

There was an unprecedented wave of foreclosures and evictions in Spain after the 2008 global financial crisis. The subsequent Great Recession had strong economic, social and environmental consequences. This paper explores the frequency of permanent shocks in foreclosure quarterly rates (defined as the number of judicial foreclosures per 1000 inhabitants) for 50 Spanish provinces (NUTS 3 regions) during the period from 2001 (Q1) to 2019 (Q4) using time series analysis. We examine whether the foreclosure rate is a stationary series, exhibits a unit root or is stationary around a process subject to structural breaks. A clear finding from this analysis is that not all shocks have transitory effects on the foreclosure rate. The percentage of unit root rejections is around 40%, thus, providing the evidence of both stationarity around occasional shocks that have permanent effects, and of a unit root, where all shocks have a permanent effect on the foreclosure rate. We also test for unit roots allowing for the presence of one and two structural breaks. Most of the structural breaks are positive, and the majority are grouped from 2008 onwards, coinciding with the financial crisis and the subsequent collapse of the Spanish housing bubble. We also find a later decrease in foreclosures in some regions that can be related to the effectiveness of the Code of Good Practice for banks and financial institutions approved in 2012. Nevertheless, the level of the foreclosure rate time series has not returned to the pre-2008 level in any case. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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14 pages, 1264 KiB

Open AccessArticle

How Have District-Based House Price Earnings Ratios Evolved in England and Wales?

by David Paul Gray

J. Risk Financial Manag. 2022, 15(8), 351; https://doi.org/10.3390/jrfm15080351 - 7 Aug 2022

Cited by 2 | Viewed by 1667

Abstract

The central aim of this paper is to provide a baseline framework for describing the evolution of an affordability indicator at a district level, before and after the financial crisis of 2008. From the mid-1990s to 2019 house price-earnings ratio for England and [...] Read more.

The central aim of this paper is to provide a baseline framework for describing the evolution of an affordability indicator at a district level, before and after the financial crisis of 2008. From the mid-1990s to 2019 house price-earnings ratio for England and Wales appear to have ratcheted-up, with the growth rate more rapid just before and a temporary decline just after the crisis. This masks a significant variation in evolutionary profiles. Following Turok and Mykhnenko in 2007 who set about exploring population trends in European cities, districts are classified into groups. Matching each district against ten stylised profiles, rather than cycles, persistent trends and single turning point paths in ratios are the norm. An asset-price model projects that finance will favour those bright futures so that spatial-sorting of those with high human capital leads to some districts benefitting from lending criteria out of line with others. Full article

(This article belongs to the Special Issue Shocks, Public Policies and Housing Markets)

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