Richard Green | University of Southern California (original) (raw)

Papers by Richard Green

SSRN Electronic Journal, 2007

The zero equity assumption is purely mechanical and can easily be replaced with any other fixed r... more The zero equity assumption is purely mechanical and can easily be replaced with any other fixed required LTV ratio. As will become apparent in the following, higher equity requirement does not change our results, as long as the equity is not sufficient to absorb all negative demand shocks.

prepared for NBER 18th Annual East Asian Seminar on Economics (June), Jun 13, 2007

This paper provides a conceptual basis for the price discovery potential for tradable market inst... more This paper provides a conceptual basis for the price discovery potential for tradable market instruments and specifically the development of mortgage securitization in Asia. We argue for the particular importance of securitization in Asia because of its potential role in increasing the transparency of the financial sector of Asian economies. We put forth a model explaining how misaligned incentives can lead to bank generated real estate crashes and macroeconomic instability. We examine the banking sector's performance in Asia ...

SSRN Electronic Journal, 2007

Across countries, renting has been chosen by the young, the single and, more generally, the mobil... more Across countries, renting has been chosen by the young, the single and, more generally, the mobile, over ownership. In this paper, we use district-level data to draw inferences about the determinants of mobility and tenure choice throughout India, and whether these determinants are stable across time. Comparing regression results between 2001 and 2011, we see that the relationship between migration and tenure choice is not stable. Although there is no association between migration and renting homes in 2001, we find that migrants in 2011 were 11 percent less likely to be renters. This negative relationship between renting and migration is driven by women migrating for marriage – who account for almost 50 percent of all migrants. Our results suggest that women who move at marriage have a 36 percent lower chance of renting. Migrant men, on the other hand, are more likely to move for economic reasons and have a 27 percent higher probability of renting homes. We also find that the determ...

Ageing Research Reviews, 2020

The ageing population is increasing the financial strain on the United States health care system,... more The ageing population is increasing the financial strain on the United States health care system, and society may be underinvesting in the place-based determinants of elderly health. The leading cause of injury for older Americans is falls in the home, resulting in more deaths than any other injury, as well as a significant portion of Medicare spending. While medical interventions have yielded mixed results, home safety renovations have been shown to be a cost-effective strategy to enable senior citizens to "age in place" safely, with the health care savings outweighing the upfront investment. Conservative projections demonstrate that Medicare can undertake this investment in home safety renovations with less than 2 percent of its budget, while breaking down the silos that unnecessarily encircle health and housing.

SSRN Electronic Journal, 2015

We develop a model for determining the optimal high income linear tax rate when there exist imper... more We develop a model for determining the optimal high income linear tax rate when there exist imperfectly substitutable types of labor. If one type is disproportionately prevalent among higher income taxpayers, then wages adjust in response to more progressive taxation and part of the statutory tax burden is shifted to lower income taxpayers. Our derivation is expressed in terms of readily interpretable elasticity and income distribution parameters which we use to estimate the optimal top tax rate under various plausible alternatives. We reject the notion from the previous literature that wage adjustments are costly enough (from a social welfare perspective) to warrant non-progressive taxation, much less subsidization of high income taxpayers. However, we also estimate that the optimal tax rate may be significantly smaller than when incidence effects are ignored, and may in fact be quite similar to current rates under U.S. policy.

SSRN Electronic Journal, 2014

This paper examines the magnitude of human capital spillovers on unemployment. Using both individ... more This paper examines the magnitude of human capital spillovers on unemployment. Using both individual and metropolitan level data, we find that the adult population share of college graduates is negatively associated with the unemployment rate. More specifically, we find that those who reside in MSAs with higher shares of college graduates are more likely to be employed, even after controlling for individual, MSA and state level factors including individual's own education level. The likelihood of being unemployed falls further for the non-college graduates compared to the college graduates. We also find that MSAs with higher shares of college graduates have lower average unemployment rates. This education spillover is not transitory but is an important factor that explains long-term divergences in the MSA unemployment rates.

SSRN Electronic Journal, 2017

We extend the Rosen-Roback spatial equilibrium model to show that increasing city-level college s... more We extend the Rosen-Roback spatial equilibrium model to show that increasing city-level college share affects the welfare distribution by changing both wages and housing costs across individuals with different education levels. Using the PSID from 1980 to 2013, we confirm that high skilled workers gain greater benefits from living in cities with a rising college share, as the increase in their wage premiums outweighs their rent growth. However, the earnings increases of the unskilled is completely offset by higher housing rents. In cities with influxes of college graduates, housing wealth also increases significantly more for the incumbent college graduates, further widening the welfare gap.

SSRN Electronic Journal, 2015

The United States is aging, and many baby boomers are reaching or will soon reach the retirement ... more The United States is aging, and many baby boomers are reaching or will soon reach the retirement age of sixty-five. On the other hand, the Millennials, the largest generation in the U.S. history, has faced the problems of high rents relative to incomes and volatility in housing market. Given the shifts, we are again seeing growing debates about how these changes in age structure will affect housing and labor markets.

SSRN Electronic Journal, 2014

Brazil has largely accomplished its urban transition but housing conditions for many residents of... more Brazil has largely accomplished its urban transition but housing conditions for many residents of its urban centers remain such that they have large negative effects on individual and social welfare. This report develops a comprehensive measure of housing adequacy based on seven different deficiencies and estimates the number of households living in these conditions in Sao Paulo metropolitan region over the period 2007-2013 using PNAD data. These housing situations necessitate policy responses but the nature of these interventions differs and cannot be limited to programs to build new units for owner occupancy using public subsidies. Our main departure from existing measures of housing needs is to estimate housing costs for owners using the owner equivalent rent approach and develop a measure of affordability that combines housing and transportation costs as a share of income. This first attempt to develop a comprehensive affordability indicator is limited by data constraints but indicates that the rise in the number of households spending or who would be spending more than 45 percent of their income on housing and transportation costs combined has been increasing rapidly over the period studied. Acknowledgements: The authors are extremely grateful for the expertise and support provided by Diana Motta, Director, Emplasa and her colleagues at Emplasa, particularly Vladimir Maciel and Fernanda Costa. We have also greatly benefited of the knowledge of the Brazilian housing system and of the advice given by

Real house prices are directly determined by the willingness of households to pay for (and willin... more Real house prices are directly determined by the willingness of households to pay for (and willingness of builders to supply) a constant-quality house. Changes in the quantity of housing demanded will affect real prices only to the extent that the long-run housing supply schedule is positively sloped. In this paper we use 1980 census data to measure the impact of the age structure and real income per household on the willingness of households to pay for a constant quality house. • Extrapolating these variables forward to 2010, we conclude that evolving demographic forces are likely to raise real house prices, not lower them.

SSRN Electronic Journal, 2009

Not so long ago, the US housing finance system was arguably the best in the world. Consumers had ... more Not so long ago, the US housing finance system was arguably the best in the world. Consumers had access to products that were not available elsewhere, and the market was able to sustain major economic disruptions with relatively little impact on either the cost or availability of mortgage credit. Fannie Mae and Freddie Mac (hereafter the GSEs 1 How Fannie Mae and Freddie Mac Support the Mortgage Market) provided the cornerstone of that system and deserve much of the credit for its success. But despite their many accomplishments, Fannie Mae and Freddie Mac are now essentially wards of the state and most policymakers have concluded that the GSE model is effectively dead. This paper attempts to establish a case for GSE reform that retains a market-driven approach but addresses acknowledged problems through charter revisions and better regulation. Fannie Mae and Freddie Mac have two basic lines of business: the "guarantee" business and the "mortgage investment" business. Both activities help to support the secondary market for residential loans.

Urban Studies, 1996

Housing quality has improved dramatically for most low-income households, but they are paying muc... more Housing quality has improved dramatically for most low-income households, but they are paying much larger shares of their income for it. Many discussions of the bottom of the market focus on either the rising costs (the 'bad' news) or the rising quality (the 'good' news). Both points of view have some merit. This paper takes a positivist approach to the question: what's happening to the bottom of the housing market. We use a variety of indicators to look at whether the supply of low-cost units has fallen. We then focus on whether this dwindling supply reflects a market failure. If the market for low-income housing is indeed failing, we would observe: relatively high prices per unit of housing services provided by low-quality housing; obstructions to the supply of low-cost housing, which arises largely from filtering; and high vacancy rates. We find evidence of market failure in some markets but not in others. Finally, we focus on one possible source of market fai...

American Economic Review, 2005

We owe Steve a great debt for his contributions to this paper and to our entire field. The Lincol... more We owe Steve a great debt for his contributions to this paper and to our entire field. The Lincoln Institute of Land Policy provided generous financial support for this paper, but they are not responsible for the views we've expressed. The authors are indebted to George Wang and Denise DiPasquale for comments on an earlier draft. Remaining errors are ours alone.

Regional Science and Urban Economics, 2002

The wealth effect tested here is different from the effect in Muellbauer and Murphy (1997), who f... more The wealth effect tested here is different from the effect in Muellbauer and Murphy (1997), who found that financial market liberalization had an impact on house prices, which in turn could affect consumption.

Real Estate Economics, 2011

We examine the effect of parameter instability on the valuation of mortgages and mortgage-backed ... more We examine the effect of parameter instability on the valuation of mortgages and mortgage-backed securities. In particular, we price 1997 issue mortgages subject to the 1998 bond market rally events assuming an empirically derived prepayment model constructed on data reflecting the 1993 experience and compare results to those that would have been obtained had actual parameter drift been captured. Using carefully constructed micro-data, we find that the refinancing propensity was greater in 1998 for a 1997 issue given the same incentives, compared to the 1993 performance of a 1992 issue. The associated change in cash flow patterns produces a 1.7% change in asset values. Results are consistent with technological improvement and greater efficiency in the mortgage market and may help explain the large losses often sustained by mortgage market participants during bond market rallies.

Journal of Regional Science, 2013

Media and academic attention to the art market has mostly focused on the high end, composed of fa... more Media and academic attention to the art market has mostly focused on the high end, composed of famous auction houses and a few well-known international dealers. In this paper, we use a newly developed database to examine the industry structure and location patterns of the broader New York art market, which consists largely of small, independent and relatively unknown galleries. We find that Manhattan galleries are highly spatially concentrated, and that clustering reflects both agglomeration economies and preferences over location-specific amenities. As predicted by theories of agglomeration economies, new galleries are more likely to open in neighborhoods with existing gallery clusters, and proximity to other galleries increases firm and establishment lifespan. We also find evidence that new galleries locate in neighborhoods with high population density and more affluent households, consistent with location models of luxury retail. The results are not consistent with the hypothesis that galleries locate in cheap, "bohemian" neighborhoods, as proxied by several demographic and economic variables.

Journal of Housing Economics, 2008

We now know that the subprime market presented consumers with sub-optimal choices that they took,... more We now know that the subprime market presented consumers with sub-optimal choices that they took, and that it contained many market imperfections. The interesting question, then, is what were the sources of imperfections. In the spirit of providing an introduction for this special issue of the Journal of Housing Economics, this paper g discusses possible sources of market failure. Market imperfections in the Mortgage Finance System are classic: asymmetric information and agency problems. But we argue that the asymmetries and agency problems were not one-sided, but rather involved a multiple set of problems that need to be addressed.

SSRN Electronic Journal, 2007

The zero equity assumption is purely mechanical and can easily be replaced with any other fixed r... more The zero equity assumption is purely mechanical and can easily be replaced with any other fixed required LTV ratio. As will become apparent in the following, higher equity requirement does not change our results, as long as the equity is not sufficient to absorb all negative demand shocks.

prepared for NBER 18th Annual East Asian Seminar on Economics (June), Jun 13, 2007

This paper provides a conceptual basis for the price discovery potential for tradable market inst... more This paper provides a conceptual basis for the price discovery potential for tradable market instruments and specifically the development of mortgage securitization in Asia. We argue for the particular importance of securitization in Asia because of its potential role in increasing the transparency of the financial sector of Asian economies. We put forth a model explaining how misaligned incentives can lead to bank generated real estate crashes and macroeconomic instability. We examine the banking sector's performance in Asia ...

SSRN Electronic Journal, 2007

Across countries, renting has been chosen by the young, the single and, more generally, the mobil... more Across countries, renting has been chosen by the young, the single and, more generally, the mobile, over ownership. In this paper, we use district-level data to draw inferences about the determinants of mobility and tenure choice throughout India, and whether these determinants are stable across time. Comparing regression results between 2001 and 2011, we see that the relationship between migration and tenure choice is not stable. Although there is no association between migration and renting homes in 2001, we find that migrants in 2011 were 11 percent less likely to be renters. This negative relationship between renting and migration is driven by women migrating for marriage – who account for almost 50 percent of all migrants. Our results suggest that women who move at marriage have a 36 percent lower chance of renting. Migrant men, on the other hand, are more likely to move for economic reasons and have a 27 percent higher probability of renting homes. We also find that the determ...

Ageing Research Reviews, 2020

The ageing population is increasing the financial strain on the United States health care system,... more The ageing population is increasing the financial strain on the United States health care system, and society may be underinvesting in the place-based determinants of elderly health. The leading cause of injury for older Americans is falls in the home, resulting in more deaths than any other injury, as well as a significant portion of Medicare spending. While medical interventions have yielded mixed results, home safety renovations have been shown to be a cost-effective strategy to enable senior citizens to "age in place" safely, with the health care savings outweighing the upfront investment. Conservative projections demonstrate that Medicare can undertake this investment in home safety renovations with less than 2 percent of its budget, while breaking down the silos that unnecessarily encircle health and housing.

SSRN Electronic Journal, 2015

We develop a model for determining the optimal high income linear tax rate when there exist imper... more We develop a model for determining the optimal high income linear tax rate when there exist imperfectly substitutable types of labor. If one type is disproportionately prevalent among higher income taxpayers, then wages adjust in response to more progressive taxation and part of the statutory tax burden is shifted to lower income taxpayers. Our derivation is expressed in terms of readily interpretable elasticity and income distribution parameters which we use to estimate the optimal top tax rate under various plausible alternatives. We reject the notion from the previous literature that wage adjustments are costly enough (from a social welfare perspective) to warrant non-progressive taxation, much less subsidization of high income taxpayers. However, we also estimate that the optimal tax rate may be significantly smaller than when incidence effects are ignored, and may in fact be quite similar to current rates under U.S. policy.

SSRN Electronic Journal, 2014

This paper examines the magnitude of human capital spillovers on unemployment. Using both individ... more This paper examines the magnitude of human capital spillovers on unemployment. Using both individual and metropolitan level data, we find that the adult population share of college graduates is negatively associated with the unemployment rate. More specifically, we find that those who reside in MSAs with higher shares of college graduates are more likely to be employed, even after controlling for individual, MSA and state level factors including individual's own education level. The likelihood of being unemployed falls further for the non-college graduates compared to the college graduates. We also find that MSAs with higher shares of college graduates have lower average unemployment rates. This education spillover is not transitory but is an important factor that explains long-term divergences in the MSA unemployment rates.

SSRN Electronic Journal, 2017

We extend the Rosen-Roback spatial equilibrium model to show that increasing city-level college s... more We extend the Rosen-Roback spatial equilibrium model to show that increasing city-level college share affects the welfare distribution by changing both wages and housing costs across individuals with different education levels. Using the PSID from 1980 to 2013, we confirm that high skilled workers gain greater benefits from living in cities with a rising college share, as the increase in their wage premiums outweighs their rent growth. However, the earnings increases of the unskilled is completely offset by higher housing rents. In cities with influxes of college graduates, housing wealth also increases significantly more for the incumbent college graduates, further widening the welfare gap.

SSRN Electronic Journal, 2015

The United States is aging, and many baby boomers are reaching or will soon reach the retirement ... more The United States is aging, and many baby boomers are reaching or will soon reach the retirement age of sixty-five. On the other hand, the Millennials, the largest generation in the U.S. history, has faced the problems of high rents relative to incomes and volatility in housing market. Given the shifts, we are again seeing growing debates about how these changes in age structure will affect housing and labor markets.

SSRN Electronic Journal, 2014

Brazil has largely accomplished its urban transition but housing conditions for many residents of... more Brazil has largely accomplished its urban transition but housing conditions for many residents of its urban centers remain such that they have large negative effects on individual and social welfare. This report develops a comprehensive measure of housing adequacy based on seven different deficiencies and estimates the number of households living in these conditions in Sao Paulo metropolitan region over the period 2007-2013 using PNAD data. These housing situations necessitate policy responses but the nature of these interventions differs and cannot be limited to programs to build new units for owner occupancy using public subsidies. Our main departure from existing measures of housing needs is to estimate housing costs for owners using the owner equivalent rent approach and develop a measure of affordability that combines housing and transportation costs as a share of income. This first attempt to develop a comprehensive affordability indicator is limited by data constraints but indicates that the rise in the number of households spending or who would be spending more than 45 percent of their income on housing and transportation costs combined has been increasing rapidly over the period studied. Acknowledgements: The authors are extremely grateful for the expertise and support provided by Diana Motta, Director, Emplasa and her colleagues at Emplasa, particularly Vladimir Maciel and Fernanda Costa. We have also greatly benefited of the knowledge of the Brazilian housing system and of the advice given by

Real house prices are directly determined by the willingness of households to pay for (and willin... more Real house prices are directly determined by the willingness of households to pay for (and willingness of builders to supply) a constant-quality house. Changes in the quantity of housing demanded will affect real prices only to the extent that the long-run housing supply schedule is positively sloped. In this paper we use 1980 census data to measure the impact of the age structure and real income per household on the willingness of households to pay for a constant quality house. • Extrapolating these variables forward to 2010, we conclude that evolving demographic forces are likely to raise real house prices, not lower them.

SSRN Electronic Journal, 2009

Not so long ago, the US housing finance system was arguably the best in the world. Consumers had ... more Not so long ago, the US housing finance system was arguably the best in the world. Consumers had access to products that were not available elsewhere, and the market was able to sustain major economic disruptions with relatively little impact on either the cost or availability of mortgage credit. Fannie Mae and Freddie Mac (hereafter the GSEs 1 How Fannie Mae and Freddie Mac Support the Mortgage Market) provided the cornerstone of that system and deserve much of the credit for its success. But despite their many accomplishments, Fannie Mae and Freddie Mac are now essentially wards of the state and most policymakers have concluded that the GSE model is effectively dead. This paper attempts to establish a case for GSE reform that retains a market-driven approach but addresses acknowledged problems through charter revisions and better regulation. Fannie Mae and Freddie Mac have two basic lines of business: the "guarantee" business and the "mortgage investment" business. Both activities help to support the secondary market for residential loans.

Urban Studies, 1996

Housing quality has improved dramatically for most low-income households, but they are paying muc... more Housing quality has improved dramatically for most low-income households, but they are paying much larger shares of their income for it. Many discussions of the bottom of the market focus on either the rising costs (the 'bad' news) or the rising quality (the 'good' news). Both points of view have some merit. This paper takes a positivist approach to the question: what's happening to the bottom of the housing market. We use a variety of indicators to look at whether the supply of low-cost units has fallen. We then focus on whether this dwindling supply reflects a market failure. If the market for low-income housing is indeed failing, we would observe: relatively high prices per unit of housing services provided by low-quality housing; obstructions to the supply of low-cost housing, which arises largely from filtering; and high vacancy rates. We find evidence of market failure in some markets but not in others. Finally, we focus on one possible source of market fai...

American Economic Review, 2005

We owe Steve a great debt for his contributions to this paper and to our entire field. The Lincol... more We owe Steve a great debt for his contributions to this paper and to our entire field. The Lincoln Institute of Land Policy provided generous financial support for this paper, but they are not responsible for the views we've expressed. The authors are indebted to George Wang and Denise DiPasquale for comments on an earlier draft. Remaining errors are ours alone.

Regional Science and Urban Economics, 2002

The wealth effect tested here is different from the effect in Muellbauer and Murphy (1997), who f... more The wealth effect tested here is different from the effect in Muellbauer and Murphy (1997), who found that financial market liberalization had an impact on house prices, which in turn could affect consumption.

Real Estate Economics, 2011

We examine the effect of parameter instability on the valuation of mortgages and mortgage-backed ... more We examine the effect of parameter instability on the valuation of mortgages and mortgage-backed securities. In particular, we price 1997 issue mortgages subject to the 1998 bond market rally events assuming an empirically derived prepayment model constructed on data reflecting the 1993 experience and compare results to those that would have been obtained had actual parameter drift been captured. Using carefully constructed micro-data, we find that the refinancing propensity was greater in 1998 for a 1997 issue given the same incentives, compared to the 1993 performance of a 1992 issue. The associated change in cash flow patterns produces a 1.7% change in asset values. Results are consistent with technological improvement and greater efficiency in the mortgage market and may help explain the large losses often sustained by mortgage market participants during bond market rallies.

Journal of Regional Science, 2013

Media and academic attention to the art market has mostly focused on the high end, composed of fa... more Media and academic attention to the art market has mostly focused on the high end, composed of famous auction houses and a few well-known international dealers. In this paper, we use a newly developed database to examine the industry structure and location patterns of the broader New York art market, which consists largely of small, independent and relatively unknown galleries. We find that Manhattan galleries are highly spatially concentrated, and that clustering reflects both agglomeration economies and preferences over location-specific amenities. As predicted by theories of agglomeration economies, new galleries are more likely to open in neighborhoods with existing gallery clusters, and proximity to other galleries increases firm and establishment lifespan. We also find evidence that new galleries locate in neighborhoods with high population density and more affluent households, consistent with location models of luxury retail. The results are not consistent with the hypothesis that galleries locate in cheap, "bohemian" neighborhoods, as proxied by several demographic and economic variables.

Journal of Housing Economics, 2008

We now know that the subprime market presented consumers with sub-optimal choices that they took,... more We now know that the subprime market presented consumers with sub-optimal choices that they took, and that it contained many market imperfections. The interesting question, then, is what were the sources of imperfections. In the spirit of providing an introduction for this special issue of the Journal of Housing Economics, this paper g discusses possible sources of market failure. Market imperfections in the Mortgage Finance System are classic: asymmetric information and agency problems. But we argue that the asymmetries and agency problems were not one-sided, but rather involved a multiple set of problems that need to be addressed.