Research | Research Briefs | Recent PublicationsILLUSTRATIVE WORKING PAPERS AND RESEARCH BRIEFS
The Ziman Center was formed with a mandate to create and administer UCLA’s activities surrounding the topic of real estate. To further this mandate, The Center has developed a community of scholars who undertake real estate related research. These Affiliated Faculty are drawn from departments throughout the UCLA campus, including management, economics, law, public policy, urban planning, engineering, and architecture. The Working Papers Series is made up of research undertaken by the Affiliated Faculty. The purpose of these papers is to widely distribute the results of this research. At regular intervals The Ziman Center prepares research briefs that provide insights into research to the wider real estate community.
WP 2007-1: “Housing Wealth, Financial Wealth, and Consumption: New Evidence from Micro Data” by Raphael Bostic, Stuart Gabriel and Gary Painter.
Issue:
The magnitude of the impact of prospective declines in home values on macro economic activity is one of the most important macro economic issues faced by the Nation today. This paper uses a new data set to estimate the effects of changes in financial and housing wealth on consumption expenditures. The research finds relatively large housing wealth effects. An important implication of this paper is that the economy may be subject to substantial macro-economic risks from moderate retrenchment in house values.
WP 2007-7: “Catastrophic Risk and Credit Markets” by Mark J. Garmaise
and Tobias J. MoskowitzIssue:
The country in general and California in particular, may be entering a period of increases in the probability of catastrophes either from nature or terrorism. Financial markets can help mitigate these risks by providing insurance and/or by providing a source of funds to finance recovery following a catastrophe (e.g., borrowing). This paper develops a model of the effects of catastrophic risk on real estate financing and prices and demonstrates that insurance market imperfections can restrict the supply of credit for properties subject to catastrophic risk. To test the theory the authors undertake an empirical analysis using data on catastrophic earth-quake risk, commercial loans and property prices in the U.S. in the 1990s. They conclude that inefficiencies in the supply of catastrophe insurance have a substantial ongoing effect on credit markets. Specifically, the authors conclude that during the 1990’s earthquake risk reduced the provision of bank financing by approximately 22 percent in California. The authors also argue that, in the absence of appropriate insurance markets, terrorism risk is likely to discourage bank financing of properties in high profile U.S. cities.
WP 2007-8: “The Cross-Sectional Dispersion of Commercial Real Estate Returns and Rent Growth: Time Variation and Economic Fluctuations” by Alberto Plazzi, Walter Torous and Rossen Valkanov
Issue:
The magnitude and determinates of the risk and returns to investments in commercial real estate has and will continue to be of interest to both practitioners and academics. For equities, time variation in risk that is related to the state of the economy has been found at both the firm and market levels. Prior to this paper there has been a dearth of research that investigates time variation in the risk associated with investments in commercial real estate. The author’s analysis is based upon the assumption that the cross-sectional dispersion of returns is a measure of the risk faced by commercial real estate investors. This paper estimates the cross-sectional dispersions of returns and growth in rents for commercial real estate using data for the period 1986 to 2002. Their analysis finds time-varying cross-section variation in the dispersion of returns by property type. This variation can be explained macroeconomic variables such as the term and credit spreads, inflation, and the short rate of interest. Finally, and possibly most importantly, the authors find evidence that non-market risks are priced for commercial real estate.
WP 2007-12: “Why Do the Poor Live in Cities? The Role of Public Transportation”
by Edward L. Glaeser, Matthew E. Kahn, and Jordan RappaportIssue:
The concentration of poverty in central cities is associated with a host of social and economic problems from failing schools to high crime rates. Literature suggest that the concentration of poverty can generate harmful “synergies” that exacerbate the social problems associated with poverty. The authors objective is to understand the sorting of the poor, within metropolitan areas, into the dense inner cities. The authors undertake statistical analysis that results in their rejecting the traditional explanation of urban poverty. They conclude that the income elasticity of demand for land is too low for urban poverty to come from wealthy individuals’ wanting to live where land is cheap (i.e., the income elasticity of demand is not greater than unity). Next the authors analyze commute times by commuting mode to see if public transportation can explain the sorting of the poor into the city center. Based upon their analysis the authors conclude that the urbanization of poverty comes mainly from better access to
public transportation in central cities.
