Periodic Reporting for period 1 - HISHOUSHOCK (The Long-Term Consequences of Shocks to Housing Wealth: Insights from History)
Période du rapport: 2022-01-01 au 2023-06-30
Climbing the housing ladder is the most important way for households to accumulate wealth, but households differ significantly in their access to housing wealth and the housing returns they realize. The goal of this project is to investigate the shocks to housing values on the wealth of individuals and their neighborhoods, focusing particularly on the long-term effects.
Measuring the impact of such shocks is difficult, because differences in housing wealth and housing values are typically closely related to economic trends and the individual choices of households, making it difficult to identify variation in housing wealth that is unrelated to the property or its owner. The limited availability of long-term data on the wealth of individuals further constrains the possibility to study long-term effects.
The solution I take in this project is to go back into the past. I propose a set of studies, specifically in the context of historical Amsterdam that exploit shocks to housing wealth to investigate their impact over the long run. The particular institutional setting of Amsterdam allows me to isolate changes in housing wealth or access to housing wealth that are unrelated to individuals or economic conditions, and whose effects can be traced using extensive recently-digitized archival records.
The first study examines how the level of house prices when individuals enter their home-buying years affects their lifetime wealth accumulation. In the second study, I investigate how tax-driven losses and gains in housing wealth affect the income and wealth of individuals and their offspring. In the final study, I take the house as a unit of observation and investigate how shocks to property- and neighborhood-level housing returns affect long-term housing values.
The project is hosted by the Erasmus School of Economics and Columbia Business School, making use of world-leading knowledge and training in real estate and financial history.
Measuring the impact of such shocks is difficult, because differences in housing wealth and housing values are typically closely related to economic trends and the individual choices of households, making it difficult to identify variation in housing wealth that is unrelated to the property or its owner. The limited availability of long-term data on the wealth of individuals further constrains the possibility to study long-term effects.
The solution I take in this project is to go back into the past. I propose a set of studies, specifically in the context of historical Amsterdam that exploit shocks to housing wealth to investigate their impact over the long run. The particular institutional setting of Amsterdam allows me to isolate changes in housing wealth or access to housing wealth that are unrelated to individuals or economic conditions, and whose effects can be traced using extensive recently-digitized archival records.
The first study examines how the level of house prices when individuals enter their home-buying years affects their lifetime wealth accumulation. In the second study, I investigate how tax-driven losses and gains in housing wealth affect the income and wealth of individuals and their offspring. In the final study, I take the house as a unit of observation and investigate how shocks to property- and neighborhood-level housing returns affect long-term housing values.
The project is hosted by the Erasmus School of Economics and Columbia Business School, making use of world-leading knowledge and training in real estate and financial history.
The first two studies of my project use the context of 18th-19th century Amsterdam. For these projects, I have assembled a database that contains categorized values for wealth at marriage and death for all individuals that died in Amsterdam between 1700 and 1805, and for those that left a taxed estate I have information on the exact portfolio of assets they left. I have linked this to their real estate ownership in 1732 and transactions during the 18th century.
While one of the two studies is still in progress, a first working paper has been released already. This paper studies a 1732 reform of the real estate tax in Holland that caused individuals to unexpectedly lose or gain wealth because they had to start paying more or less taxes than anticipated. The released working paper shows that such tax reforms can have large consequences on lifetime wealth accumulation because households do not move to a smaller house in case they have to unexpectedly pay more taxes (or to a larger house if they have to pay less). As a result, the change in tax mostly affects savings, causing the effect of tax reforms to grow substantially over time. This channel suggests that housing tax reforms have much larger consequences than thought so far. This is important, as many countries around the world, most concretely Germany, are implementing reforms that are almost exaclty the same as the 18th century reform studied in this paper. The paper has been posted on SSRN and has been presented at several finance conferences and seminars.
I have relased a second working paper, which is a modification of the third project that was initially proposed and described above. This paper moves beyond the historical context and focuses specifically on the impact of real estate investors on housing costs and neighborhoods today. In this paper, me and my co-authors show that a ban on real estate investors did not have a significant effect on house values. We show banning buy-to-let investors leads to higher entry of higher incomes in neighborhoods, as owner-occupiers tend to have higher incomes than tenants in similar properties. Investors might thus play a sizable role in changing the residential composition of neighborhoods, rather than having direct house price effects themselves. This paper generated significant media coverage both nationally and internationally, and will also be presented in front of policymakers at the Dutch Ministry of Finance and Internal Affairs, and at the European Commission.
While one of the two studies is still in progress, a first working paper has been released already. This paper studies a 1732 reform of the real estate tax in Holland that caused individuals to unexpectedly lose or gain wealth because they had to start paying more or less taxes than anticipated. The released working paper shows that such tax reforms can have large consequences on lifetime wealth accumulation because households do not move to a smaller house in case they have to unexpectedly pay more taxes (or to a larger house if they have to pay less). As a result, the change in tax mostly affects savings, causing the effect of tax reforms to grow substantially over time. This channel suggests that housing tax reforms have much larger consequences than thought so far. This is important, as many countries around the world, most concretely Germany, are implementing reforms that are almost exaclty the same as the 18th century reform studied in this paper. The paper has been posted on SSRN and has been presented at several finance conferences and seminars.
I have relased a second working paper, which is a modification of the third project that was initially proposed and described above. This paper moves beyond the historical context and focuses specifically on the impact of real estate investors on housing costs and neighborhoods today. In this paper, me and my co-authors show that a ban on real estate investors did not have a significant effect on house values. We show banning buy-to-let investors leads to higher entry of higher incomes in neighborhoods, as owner-occupiers tend to have higher incomes than tenants in similar properties. Investors might thus play a sizable role in changing the residential composition of neighborhoods, rather than having direct house price effects themselves. This paper generated significant media coverage both nationally and internationally, and will also be presented in front of policymakers at the Dutch Ministry of Finance and Internal Affairs, and at the European Commission.
Until the end of the project, I hope to release a final working paper that studies long-term social mobility by wealth class in 17th-19th century Amsterdam, focusing specifically on measuring the intergenerational transmission of housing wealth. The data collection for this project has been completed and linkage of generations is in progress. Furthermore, I hope to continue presenting the two working papers I have released already and submit these to journals by the end of the project. After revising the working paper on the long-term effects of taxes, I aim to share the results on X and some interested policymakers that are currently working on proposing or implementing similar reforms.