Residential house prices

• Applicant: Professor Dr. Marcel Fischer
• Subject Area: Accounting and Finance
• Term: from 2020 to 2023
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 452321614

In this application, my research team and I propose two projects that investigate determinants of prices of individual residential homes. Both projects make use of an exclusive database that covers transactions from the entire US over more than two decades. The first project starts out with the preliminary observation that over the last two decades, owner-occupiers consistently realized the lowest average annualized returns when selling their homes. In contrast, short-term oriented institutional investors consistently outperform the other groups. This project aims to identify the underlying reasons of these patterns by investigating drivers such as location, timing, and risk-profiles of different investor groups. To do so, we make use of repeat sales and information about associated mortgages, as well as publicly available time-series on local economic conditions such as income and unemployment. We further plan to use time-series such as mortgage rates to investigate investor sensitivity to macroeconomic factors. In contrast to prior work that focuses on few, larger metropolitan areas and particular groups of investors only, this project is the first to provide a representative, multi-dimensional analysis of the performance of a broad spectrum of investor groups. The results of this project therefore have the potential to provide valuable insights for both policy makers and investors.In the second project, my research team and I want to investigate an effect of property taxation on trading prices that has so far been neglected in the literature. Real estate is usually taxed according to value, such that owners of higher-valued homes have to pay higher taxes. As each home is infrequently traded and unique, however, the determination of such estimated market values (EMVs) is difficult and errors are likely. We argue that this gives rise to two counteracting channels through which EMVs should influence trading prices. On the one hand, the EMV of a home can serve as an anchor for buyers and sellers, implying a positive effect. On the other hand, a high EMV results in higher tax payments, which should in turn affect a home’s value in negative fashion. To address this opposing relationship, we propose a novel identification strategy exploiting characteristics of New York State’s property tax legislation, enabling us to employ a Differences-in-Differences approach. Whereas prior literature investigated the effects on home values through changes in the tax rate, the purpose of this project is to investigate whether the tax base (in this case the EMV) also affects trading prices. The project has implications for all countries with a property tax system that relies on estimated base values, and is thus relevant for Germany, which only recently passed new laws on the according-to-value taxation of real estate.

• DFG Programme: Research Grants