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Speakers:

Paul Willen (Federal Reserve Bank of Boston)

Do Lenders Still Discriminate? A Robust Approach for Assessing Differences in Menus

Abstract:Findings that minority consumers pay higher interest rates compared with white consumers who are observably similar with respect to the mortgage market can be interpreted as evidence that lenders systematically discriminate against minority borrowers. An alternative explanation for the interest rate disparity is that minority consumers are more constrained in their choice of how much to pay in upfront fees (also known as discount points) in return for lower interest rates. The availability of this choice between a higher upfront fee and a higher interest rate creates a “menu problem” that complicates the detection of lender discrimination and renders methods employed by some studies susceptible to false results. The authors develop a solution to this problem by defining a test statistic for equality in rate and discount point menus and a difference-in-menus metric for assessing whether one group of borrowers would prefer to switch to another group’s menus. They use data from 2018 and 2019 on borrowers’ chosen mortgage rates and discount points to examine whether lenders discriminated against minority borrowers by offering them a distribution of menus that was worse than the one offered to observationally similar non-Hispanic white borrowers.

Aurel Hizmo (Federal Reserve Board)

How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic

Abstract: We study the evolution of US mortgage credit supply during the COVID-19 pandemic. Although the mortgage market experienced a historic boom in 2020, we show there was also a large and sustained increase in intermediation markups that limited the pass-through of low rates to borrowers. Markups typically rise during periods of peak demand, but this historical relationship explains only part of the large increase during the pandemic. We present evidence that pandemic-related labor market frictions and operational bottlenecks contributed to unusually inelastic credit supply, and that technology-based lenders, likely less constrained by these frictions, gained market share. Rising forbearance and default risk did not significantly affect rates on “plain vanilla” conforming mortgages, but it did lead to higher spreads on mortgages without government guarantees and loans to the riskiest borrowers. Mortgage-backed securities purchases by the Federal Reserve also supported the flow of credit in the conforming segment.

Fernando Ferreira (University of Pennsylvania, The Wharton School)

Neighborhood Choice After COVID: The Role of Rents, Amenities, and Work-From-Home

Abstract: We investigate how neighborhood preferences and choices changed one year after the beginning of the COVID pandemic. We study a Neighborhood Choice Program that helped graduating students choose where to live by providing new information about rents and amenities. Using panel data on neighborhood rankings before and after information, we find that changes in rankings favor neighborhoods where social and professional network shares are higher by 2.2 percentage points, rents are lower by $432, and are 2.4 kilometers farther from the city center. Interestingly, we did not detect this movement away from downtowns when the program was offered prior to the pandemic. We then estimate a neighborhood choice model to recover MWTP for amenities both before and after the pandemic. Our estimates reveal that MWTP for network shares post COVID is markedly lower than prior to COVID. Finally, we perform counterfactuals to quantitatively assess how changes in preferences affect where people live, and find that weaker network preferences are most impactful, while heterogeneity by commute and work-from-home are less relevant.

Boaz Abramson (Columbia Business School)

The Welfare Effects of Eviction and Homelessness Policies

Abstract: This paper studies the implications of rental market policies that address evictions and homelessness. Policies that make it harder to evict delinquent tenants, for example by providing tax-funded legal counsel in eviction cases ("Right-to-Counsel") or by instating eviction moratoria, protect renters from eviction in bad times. However, higher default costs to landlords lead to higher equilibrium rents and lower housing supply, implying homelessness might increase. I quantify these tradeoffs in a model of rental markets in a city, matched to micro data on rents and evictions as well as shocks to income and family structure. I find that "Right-to-Counsel" drives up rents so much that homelessness increases by 15% and welfare is dampened. Since defaults on rent are driven by persistent income shocks, making it harder to evict tends to extend the eviction process but doesn't prevent evictions. In contrast, rental assistance lowers tenants' default risk and as a result reduces homelessness by 45% and evictions by 75%. It increases welfare despite its costs to taxpayers. Eviction moratoria following an unexpected economic downturn can also prevent evictions and homelessness, if used as a temporary measure.

Dean Corbae (University of Wisconsin-Madison)

Equilibrium Eviction

Abstract: We develop a simple equilibrium model of rental markets for housing in which eviction occurs endogenously. A landlord chooses whether to evict a delinquent renter and may do so because the landlord incurs fixed costs for maintaining a housing unit and has the option of posting a new vacancy. Renters who are persistently delinquent are more likely to be evicted and they pay more per quality-adjusted unit of housing than renters who are less likely to be delinquent. Evictions are never socially optimal once a match has been made, since the housing services accruing to the renter must be larger than the landlord’s costs in order for a lease to be signed in the first place. If rents can be set sufficiently high, optimal eviction policy forbids evictions completely, while if rents are constrained then optimal policy allows some evictions to support landlord profits and ensure sufficient rental supply. In general, the decentralized equilibrium with constraints on how much rent can be charged features both socially inefficient evictions and too few vacancies. Neighborhood externalities can widen the gap between rich and poor renters.

Matthew Turner (Brown University)

The Value of Piped Water and Sewers: Evidence from 19th Century Chicago

Abstract: We estimate the impact of piped water and sewers on property values in late-19th century Chicago. The cost of sewer construction depends sensitively on imperceptible variation in grade, and such variations in grade delay water and sewer service to part of the city. This delay provides quasi-random variation for causal estimates. We extrapolate ate estimates from our natural experiment to the area treated with water and sewer service during 1874-1880 using a new estimator. Water and sewer access increases property values by more than a factor of two. This exceeds costs by almost a factor of 40.

Past Summer Conferences:

2021 Wisconsin Real Estate Research Conference

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