Resumen de Applied urban and regional economics: housing markets and political
This thesis explores three di erent questions in the eld of urban and regional economics. In all cases, the bulk of the analysis is empirical non-structural. In the case of the rst chapter, I consider a question in the eld of geographical political economy by studying the e ect of Italian municipalities’ political connections on the allocation of government transfers for the nancing of municipal governments. In the case of chapter 2, I ask how di erent segments of the United Kingdom housing markets fared during the recent housing market in terms of the evolution of prices and transaction volumes. Finally, in the case of chapter 3 I contribute to the study of the relationship between labor and housing markets by looking into the e ect of having a mortgage on workers’ quit rates using panel data for young workers in the United States.
The three chapters have in common that they address geographically relevant questions particularly regarding the allocation of resources and/or households in space. All three papers use panel data techniques either to achieve identication (chapters 1 and 3) or for descriptive purposes (the study of composition of sales in chapter 2, particularly in the case of repeatsales).
Finally, the three chapters fall within the eld of urban and regional economics.
Chapter 1 contributes to the empirical analyses of pork-barrel politics which typically use expenditure or investment data at the electoral district level and rely on either (i) di erences in some measure of in uence of representatives such as seniority or number of electoral preferences (Golden and Picci, 2008), (ii) over representation of certain districts relative to their population (see Atlas et al. 1995 or Knight 2008 for the US case), (iii) comparing representatives who have reached their term limit with those who are instead seeking re-election (Aidt and Shvets, 2012).
The approach followed here is di erent insofar as I look at the e ect of being the birthplace of a member of parliament on the allocation of public funds in the Italian context.
Identication relies on presumably exogenous parliamentary turnover and its e ect on government transfers. Using expenditure data that is more geographically disaggregated than electoral districts provides us with a rich source of variation to identify pork-barrel politics.
More importantly, it allows us to understand whether this behaviour seeks to favour voters or to pursue other personal benets for the politician which are not aligned with those of her constituency. To this end, we exploit the fact that the birthplace of roughly half of Italian members of Parliament lies outside their electoral district. Given that the allocation of state funds favours these out-of-district birthplaces, where parliamentarians have no voters, the chapter concludes that reelection concerns are not behind the observed birth town bias. Instead, we provide evidence that this behaviour is driven by post-congressional career concerns.
This explanation relates to the studies by Diermeier, Keane and Merlo (2005) and Merlo et al. (2008) highlighting the importance of post-congressional careers of politicians in the United States and Italy.
Chapter 2 was written jointly with Luca Repetto and contributes to the literature studying the heterogeneous price trajectories of di erent housing market segments within cities over time. This literature has grown recently as more and more micro level datasets on home sales are available to economists. A few examples in this sense can be found in the studies seeking to explain within-city changes in prices during the recent US housing boom (e.g. Ferreira and Gyourko (2011), Glaeser, Gottlieb and Tobio (2012) and Guerrieri, Hartley and Hurst (2013)).
These studies focus exclusively on prices and do not cover transaction volumes. Moreover, they focus on a boom period in the United States while I look at both prices and transactions during a bust period in the United Kingdom.
Landvoigt, Piazzesi and Schneider (2012) do document a change in both transactions and prices for di erent market segments in San Diego between 2000 and 2005. They focus on matching the joint distributions of wealth, income and qualities using an assignment model which takes the quality distribution of traded homes as given. Instead, this paper focuses specically in documenting and explaining a change in the quality distribution of traded homes. Analysing specically the evolution of transactions for di erent market segments is relevant because, as shown below, in the period studied here the disparity between segments is larger in the dynamics of transaction volumes than in the dynamics for prices.
In order to explain the change in the composition of sales I propose a stylized model of the housing ladder in which credit constraints a ect the composition of sales through their e ect on rst-time buyers and trade up buyers. In the model when credit is tighter young households are priced out of home-ownership by older, wealthier households who keep their starter homes when trading up the ladder. From the model I obtained implications that are tested using spatially disaggregated data on transactions, housing tenure and age structure of the population.
The two main contributions of this chapter are to showthat there is a clear cyclical pattern to the composition of sales. Changes in the composition of sold homes had been treated as a source of measurement problem by the price index literature (see Hill (2012)). I show that this can be an interesting object of study in and of itself and put forward a straightforward method to study how it changes. Moreover, I present a theory which relates changes in the omposition of sales to the tightening of credit conditions via the key role of rst-time buyers and “accidental landlords”.
Finally, chapter 3 studies the e ect of having a mortgage on quit rates for di erent groups of workers and di erent quit denitions. This study contributes to the literature on the interactions between housing and labor markets. Since Oswald (1999), several studies have explored the links between homeownership and job related migration (see Head and Lloyd- Ellis (2012a) and Green and Hendershott (2001)). Other studies have documented that during a housing bust agents with negative housing equity may be e ectively ’lock-in’ to their homes (see Ferreira, Gyourko and Tracy (2010a), Engelhardt (2003) and the references therein).
In this chapter I propose an alternative channel relating labour and housing markets.
Using data from the National Longitudinal Survey of Youth (NLSY79), a US panel, I show that male workers who are paying a mortgage are less likely to quit their jobs than other home-owners. Across specications, these workers are between 3% and 5% less likely to quit their jobs than other home-owners. My ndings are obtained after controlling for observed and unobserved worker heterogeneity and are documented both for all quits and quits out of the labour force.
The link between quit rates and housing debt has implications for worker turnover and labour market allocations beyond the internal migration channel which has been frequently emphasized in the literature. Results clearly indicate that having a mortgage reduces job to job transitions for male workers. If mortgage debt reduces workers’ propensity to take up an alternative job, this will a ect the allocation of workers to rms. Moreover, it may sustain relative low quality employer-employee matches, with its concomitant in uence in productivity and wages.
This thesis leaves several open avenues for further work in all three areas of study.
In the case of the rst chapter, an interesting avenue for further research is to study how political connections shape fund allocations between government agencies. In a sense, this is what we do in this chapter and what Faccio (2006) studies for rms and stock market performance.
But insofar as the denition of political connections presented here is not exhaustive, many other denitions can be exploited. The Italian context suits well for this purpose because of the wide availability of information on politicians’ careers and their passage through di erent levels of government. The relevance of this type of questions is underlined by the fact that di erent allocation of funds across government levels may give rise to di erences in sectoral compositions or regional growth rates.
For the second chapter, there are at least two important avenues for further research which remain uncovered. On the rst place, the chapter shows that the composition of sales can change over the cycle. This has implications for the measurement of house price indices.
Insofar as these indices control for composition they can be robust to these changes in composition. However, mean or median house price indices are sometimes still popular (such as the National Association of Realtors index in the United States) and often are the only available alternative in some developing countries. By documenting how the composition of home sales changes over the cycle, we can have an idea of how o -the mark are these indices relative to their composition adjusted counterparts. This may in turn be informative in order to correctly interpret these indices when no better alternative is available.
A second avenue for further research is related to the key role of the changing supply of rented homes in the model. These homes can come to the rental market in two ways, either through purchases for investment purposes by wealthy households or through moves by households who trade up the ladder without selling their starter homes. This duality is intuitive but there is scarce micro level evidence pointing at how these two channels compare to each other. Moreover, several models assume tacitly that the owners of rented homes are deep pocketed institutions allocating resources to home purchase as part of a portfolio allocation problem. However, this may not be the case for at least part of the rental homes supply.
Studying how and when households become landlords by trading up the ladder without selling their starter would then be a key step towards a better understanding of the composition of rented home supply.
Finally, in the case of chapter 3 a next step in the research agenda would be to nd credibly exogenous variation a ecting whether or not a household has a mortgage or a ecting the size of the mortgage itself. Regarding the rst case, lotteries for the allocation of subsidized home-ownership could provide the exogenous source of variation (an example of these would be the lotteries allocating vivienda de protección ocial in Spain). In the second case geographic variation in credit conditions and home prices, as used in Del Boca and Lusardi (2003), could provide a credibly exogenous instrument to deal with this problem. By following either of these strategies we could obtain clearer evidence on how the quit rates are a ected by mortgage debt.
