Jake Wetzel | University of British Columbia (original) (raw)
Papers by Jake Wetzel
Real Estate Economics, Dec 2, 2023
Real Estate Economics, May 20, 2021
The decisions on the siting of hazardous facilities and compensation for nearby landowners depend... more The decisions on the siting of hazardous facilities and compensation for nearby landowners depends on an accurate estimation of the negative externalities these facilities place on proximate land uses, primarily residential properties. In this paper we highlight the sensitivity of these estimates to the treatment of distance from the hazard and to the presence of other nearby land uses identified at a highly granular geographic level. Recent opposition to the expansion of North American pipeline capacity has been intense, mixing concerns about climate change, environmental damage, and local opposition to the physical presence of pipelines in their neighbourhoods. This paper studies the disamenity effects associated with the last factor. In doing so we generate results that more broadly address the specification and left out variable bias challenges of measuring the capitalization of negative location-specific environmental externalities. The key contributions of this paper are first showing that disamenity effects can be highly localized and easily susceptible to errors with parametric specifications. Second, that the magnitude of the effect on house prices arising from proximity are sensitive to land uses that are not the hazard in question, but whose presence may be correlated with the hazard. And third, that negative news about a hazard increases the assessment of risk and lowers nearby house values, but that this effect is temporary. We find that the quantitative effects of proximity to oil pipelines are relatively small: prices are lower by 5.7 percent ($39.3k) for properties with a pipeline easement, 2.1 percent ($14.4k) lower for those properties adjacent to a property with an easement, and 1.4 percent ($9.6k) for those adjacent to the former, one property further away from the pipeline. Though this last result is sensitive to specification choice. The prices of all residential properties further away from the pipeline in our data are unaffected. When expressed in cardinal distance, only the prices for residential properties within 100 meters of the pipeline easement are affected. The findings here suggest that care and flexibility with functional forms, the perception of hazards, and attention to land use contexts is necessary for an analysis of the negative externalities for residential property associated with proximity to environmental disamenities and that simple parametric treatments are highly likely to result in biased estimates.
Social Science Research Network, 2013
Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credi... more Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credit line growth provide older homeowners with put options that are "in the money" when available credit exceeds mortgaged homes' resale value. Federal Housing Administration (FHA) mortgage insurance pricing and credit rules do not reflect geographic or cyclical risk, and HECMs were disproportionately originated near the home price cycle peak in markets with large subsequent busts. Federal reverse mortgage insurance has thus lost money, contrary to legislative goals. Was selection on geography and timing adverse because borrowers consciously exploited unpriced information? This appears unlikely because borrowers have not used credit "ruthlessly." Borrowers whose loans have terminated with credit limits greater than property value have not been likelier to exhaust credit lines than similar borrowers with put options "out of the money."
Real Estate Economics
The decisions on the siting of hazardous facilities and compensation for nearby landowners depend... more The decisions on the siting of hazardous facilities and compensation for nearby landowners depend on an accurate estimation of the negative externalities these facilities place on proximate land uses, primarily residential properties. In this paper, we highlight the sensitivity of these estimates to the treatment of distance from the hazard and to the presence of other nearby externality generating land uses identified at a highly granular geographic level. We find that estimated spillovers are quite sensitive to highly localized treatment of other land uses and that naive parametric specifications yield misleading results. Unlike previous work, we find proximity to a major oil pipeline results in lower house prices: properties adjacent to a property with a pipeline easement transact for 2.2% ($C 15.8k) less and those one property further away 1.6% ($C 11k) less than more distant residential properties. These effects vary by the type of land use on which the pipeline easement lies. ...
SSRN Electronic Journal
A cornerstone of finance theory is that risk and expected return should be positively related. Ho... more A cornerstone of finance theory is that risk and expected return should be positively related. However, empirical studies of mortgage contracts often find a negative relationship between interest rates and risk terms (e.g., loan-to-value ratio, loan maturity, etc.). Previous studies have found such results puzzling, surmising they may arise because traditional models do not explicitly account for the simultaneous determination of interest rates and mortgage terms. We therefore specify separate supply and demand equations for loanable funds, estimate them simultaneously, and then examine mortgage contracts as equilibrium outcomes of a multidimensional negotiation between borrower and lender. Our empirical results reveal that borrowers and lenders individually require higher returns for greater risk, as theory requires, but that this can produce negative risk/return correlations in contract outcomes, as observed in the data. We solve the loan-to-value puzzle and maturity puzzle, demonstrate how various risk factors impact the simultaneous determination of equilibrium interest rates and loan terms, and show that mortgage lenders and borrowers of different types have understandably different risk appetites.
SSRN Electronic Journal, 2013
Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credi... more Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credit line growth provide older homeowners with put options that are "in the money" when available credit exceeds mortgaged homes' resale value. Federal Housing Administration (FHA) mortgage insurance pricing and credit rules do not reflect geographic or cyclical risk, and HECMs were disproportionately originated near the home price cycle peak in markets with large subsequent busts. Federal reverse mortgage insurance has thus lost money, contrary to legislative goals. Was selection on geography and timing adverse because borrowers consciously exploited unpriced information? This appears unlikely because borrowers have not used credit "ruthlessly." Borrowers whose loans have terminated with credit limits greater than property value have not been likelier to exhaust credit lines than similar borrowers with put options "out of the money."
Social Science Research Network, 2018
A cornerstone of finance theory is that risk and expected return should be positively related. Ho... more A cornerstone of finance theory is that risk and expected return should be positively related. However, empirical studies of mortgage contracts often find a negative relationship between interest rates and risk terms (e.g., loan-to-value ratio, loan maturity, etc.). Previous studies have found such results puzzling, surmising they may arise because traditional models do not explicitly account for the simultaneous determination of interest rates and mortgage terms. We therefore specify separate supply and demand equations for loanable funds, estimate them simultaneously, and then examine mortgage contracts as equilibrium outcomes of a multidimensional negotiation between borrower and lender. Our empirical results reveal that borrowers and lenders individually require higher returns for greater risk, as theory requires, but that this can produce negative risk/return correlations in contract outcomes, as observed in the data. We solve the loan-to-value puzzle and maturity puzzle, demonstrate how various risk factors impact the simultaneous determination of equilibrium interest rates and loan terms, and show that mortgage lenders and borrowers of different types have understandably different risk appetites.
Real Estate Economics, Dec 2, 2023
Real Estate Economics, May 20, 2021
The decisions on the siting of hazardous facilities and compensation for nearby landowners depend... more The decisions on the siting of hazardous facilities and compensation for nearby landowners depends on an accurate estimation of the negative externalities these facilities place on proximate land uses, primarily residential properties. In this paper we highlight the sensitivity of these estimates to the treatment of distance from the hazard and to the presence of other nearby land uses identified at a highly granular geographic level. Recent opposition to the expansion of North American pipeline capacity has been intense, mixing concerns about climate change, environmental damage, and local opposition to the physical presence of pipelines in their neighbourhoods. This paper studies the disamenity effects associated with the last factor. In doing so we generate results that more broadly address the specification and left out variable bias challenges of measuring the capitalization of negative location-specific environmental externalities. The key contributions of this paper are first showing that disamenity effects can be highly localized and easily susceptible to errors with parametric specifications. Second, that the magnitude of the effect on house prices arising from proximity are sensitive to land uses that are not the hazard in question, but whose presence may be correlated with the hazard. And third, that negative news about a hazard increases the assessment of risk and lowers nearby house values, but that this effect is temporary. We find that the quantitative effects of proximity to oil pipelines are relatively small: prices are lower by 5.7 percent ($39.3k) for properties with a pipeline easement, 2.1 percent ($14.4k) lower for those properties adjacent to a property with an easement, and 1.4 percent ($9.6k) for those adjacent to the former, one property further away from the pipeline. Though this last result is sensitive to specification choice. The prices of all residential properties further away from the pipeline in our data are unaffected. When expressed in cardinal distance, only the prices for residential properties within 100 meters of the pipeline easement are affected. The findings here suggest that care and flexibility with functional forms, the perception of hazards, and attention to land use contexts is necessary for an analysis of the negative externalities for residential property associated with proximity to environmental disamenities and that simple parametric treatments are highly likely to result in biased estimates.
Social Science Research Network, 2013
Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credi... more Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credit line growth provide older homeowners with put options that are "in the money" when available credit exceeds mortgaged homes' resale value. Federal Housing Administration (FHA) mortgage insurance pricing and credit rules do not reflect geographic or cyclical risk, and HECMs were disproportionately originated near the home price cycle peak in markets with large subsequent busts. Federal reverse mortgage insurance has thus lost money, contrary to legislative goals. Was selection on geography and timing adverse because borrowers consciously exploited unpriced information? This appears unlikely because borrowers have not used credit "ruthlessly." Borrowers whose loans have terminated with credit limits greater than property value have not been likelier to exhaust credit lines than similar borrowers with put options "out of the money."
Real Estate Economics
The decisions on the siting of hazardous facilities and compensation for nearby landowners depend... more The decisions on the siting of hazardous facilities and compensation for nearby landowners depend on an accurate estimation of the negative externalities these facilities place on proximate land uses, primarily residential properties. In this paper, we highlight the sensitivity of these estimates to the treatment of distance from the hazard and to the presence of other nearby externality generating land uses identified at a highly granular geographic level. We find that estimated spillovers are quite sensitive to highly localized treatment of other land uses and that naive parametric specifications yield misleading results. Unlike previous work, we find proximity to a major oil pipeline results in lower house prices: properties adjacent to a property with a pipeline easement transact for 2.2% ($C 15.8k) less and those one property further away 1.6% ($C 11k) less than more distant residential properties. These effects vary by the type of land use on which the pipeline easement lies. ...
SSRN Electronic Journal
A cornerstone of finance theory is that risk and expected return should be positively related. Ho... more A cornerstone of finance theory is that risk and expected return should be positively related. However, empirical studies of mortgage contracts often find a negative relationship between interest rates and risk terms (e.g., loan-to-value ratio, loan maturity, etc.). Previous studies have found such results puzzling, surmising they may arise because traditional models do not explicitly account for the simultaneous determination of interest rates and mortgage terms. We therefore specify separate supply and demand equations for loanable funds, estimate them simultaneously, and then examine mortgage contracts as equilibrium outcomes of a multidimensional negotiation between borrower and lender. Our empirical results reveal that borrowers and lenders individually require higher returns for greater risk, as theory requires, but that this can produce negative risk/return correlations in contract outcomes, as observed in the data. We solve the loan-to-value puzzle and maturity puzzle, demonstrate how various risk factors impact the simultaneous determination of equilibrium interest rates and loan terms, and show that mortgage lenders and borrowers of different types have understandably different risk appetites.
SSRN Electronic Journal, 2013
Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credi... more Home Equity Conversion Mortgage ("HECM") rules concerning repayment, limited liability, and credit line growth provide older homeowners with put options that are "in the money" when available credit exceeds mortgaged homes' resale value. Federal Housing Administration (FHA) mortgage insurance pricing and credit rules do not reflect geographic or cyclical risk, and HECMs were disproportionately originated near the home price cycle peak in markets with large subsequent busts. Federal reverse mortgage insurance has thus lost money, contrary to legislative goals. Was selection on geography and timing adverse because borrowers consciously exploited unpriced information? This appears unlikely because borrowers have not used credit "ruthlessly." Borrowers whose loans have terminated with credit limits greater than property value have not been likelier to exhaust credit lines than similar borrowers with put options "out of the money."
Social Science Research Network, 2018
A cornerstone of finance theory is that risk and expected return should be positively related. Ho... more A cornerstone of finance theory is that risk and expected return should be positively related. However, empirical studies of mortgage contracts often find a negative relationship between interest rates and risk terms (e.g., loan-to-value ratio, loan maturity, etc.). Previous studies have found such results puzzling, surmising they may arise because traditional models do not explicitly account for the simultaneous determination of interest rates and mortgage terms. We therefore specify separate supply and demand equations for loanable funds, estimate them simultaneously, and then examine mortgage contracts as equilibrium outcomes of a multidimensional negotiation between borrower and lender. Our empirical results reveal that borrowers and lenders individually require higher returns for greater risk, as theory requires, but that this can produce negative risk/return correlations in contract outcomes, as observed in the data. We solve the loan-to-value puzzle and maturity puzzle, demonstrate how various risk factors impact the simultaneous determination of equilibrium interest rates and loan terms, and show that mortgage lenders and borrowers of different types have understandably different risk appetites.