Periodic Reporting for period 2 - HISHOUSHOCK (The Long-Term Consequences of Shocks to Housing Wealth: Insights from History)
Période du rapport: 2023-07-01 au 2024-06-30
Climbing the housing ladder is the most important way for households to accumulate wealth, but households differ significantly in their access to housing. The goal of this project was to investigate the effect of shocks to housing values on the wealth and homeownership of individuals and their neighborhoods, focusing particularly on the long term.
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 of studying long-term effects.
In this project, I overcome these issues by going 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 house prices 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 demographic changes affect house prices over the very long term and how this relates to entry and exit out of homeownership. 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. The third study moves to a modern context and investigates how investor-ownership vs. homeownership affects the composition of neighborhoods and local housing costs.
The project was 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 of studying long-term effects.
In this project, I overcome these issues by going 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 house prices 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 demographic changes affect house prices over the very long term and how this relates to entry and exit out of homeownership. 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. The third study moves to a modern context and investigates how investor-ownership vs. homeownership affects the composition of neighborhoods and local housing costs.
The project was 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.
This project has resulted in three different papers.
Two of these working papers are set in historical Amsterdam. For these, I have built large, linked databases of wealth and demographics (births, marriages, and deaths) of individuals in historical Amsterdam, as well as information on real estate ownership at several points in time and housing transactions. Upon publication of the respective papers, these datasets will also be made publicly available.
In the first paper, I examine how demographic changes affect house prices. Using centuries of data from Amsterdam, I show that birth rates today predict significant increases in house prices relative to rents 25-30 years later, followed by decreases 60-64 years later. By analyzing housing transactions and wealth data, I demonstrate that this phenomenon is linked to age-dependent entry into and exit from homeownership.
In the second paper, I investigate how shocks to housing wealth arising from property taxes impact household finances in the long run. This study focuses on a 1732 reform of the real estate tax in Holland, which caused individuals to unexpectedly lose or gain wealth due to changes in their tax liabilities. The findings reveal that such shocks can have profound effects because households tend not to move even when faced with significantly higher or lower taxes. As a result, the tax changes primarily influence savings, leading to a compounding wealth effect of tax reforms over time. This suggests that property tax reforms, which are often subjects of intense public debate, have far more substantial effects on households than previously understood. Both historical papers have been presented at leading academic conferences and in seminars.
The third working paper moves beyond the historical context and focuses on the impact of real estate investors on housing costs and neighborhood composition in the present day. In this study, my co-authors and I examine the effects of a ban on real estate investors and find that it did not significantly affect house values. However, we show that banning buy-to-let investors leads to higher entry of higher-income households into neighborhoods, as owner-occupiers generally have higher incomes than tenants in similar properties. This suggests that investors play a significant role in altering the residential composition of neighborhoods, rather than directly influencing house prices. This paper generated significant media coverage both nationally and internationally and has been widely presented in seminars, conferences, and to policymakers.
Two of these working papers are set in historical Amsterdam. For these, I have built large, linked databases of wealth and demographics (births, marriages, and deaths) of individuals in historical Amsterdam, as well as information on real estate ownership at several points in time and housing transactions. Upon publication of the respective papers, these datasets will also be made publicly available.
In the first paper, I examine how demographic changes affect house prices. Using centuries of data from Amsterdam, I show that birth rates today predict significant increases in house prices relative to rents 25-30 years later, followed by decreases 60-64 years later. By analyzing housing transactions and wealth data, I demonstrate that this phenomenon is linked to age-dependent entry into and exit from homeownership.
In the second paper, I investigate how shocks to housing wealth arising from property taxes impact household finances in the long run. This study focuses on a 1732 reform of the real estate tax in Holland, which caused individuals to unexpectedly lose or gain wealth due to changes in their tax liabilities. The findings reveal that such shocks can have profound effects because households tend not to move even when faced with significantly higher or lower taxes. As a result, the tax changes primarily influence savings, leading to a compounding wealth effect of tax reforms over time. This suggests that property tax reforms, which are often subjects of intense public debate, have far more substantial effects on households than previously understood. Both historical papers have been presented at leading academic conferences and in seminars.
The third working paper moves beyond the historical context and focuses on the impact of real estate investors on housing costs and neighborhood composition in the present day. In this study, my co-authors and I examine the effects of a ban on real estate investors and find that it did not significantly affect house values. However, we show that banning buy-to-let investors leads to higher entry of higher-income households into neighborhoods, as owner-occupiers generally have higher incomes than tenants in similar properties. This suggests that investors play a significant role in altering the residential composition of neighborhoods, rather than directly influencing house prices. This paper generated significant media coverage both nationally and internationally and has been widely presented in seminars, conferences, and to policymakers.
The main project period has ended, but the next step is to publish the three working papers that have emerged from this project. The first working paper has been conditionally accepted at the Journal of Finance. Submission of the second and third working papers is planned for the academic year 2024/2025.
From a societal perspective, the first paper of this project highlights how demographic conditions remain a key driver of housing markets over the long term. With birth rates falling and the population gradually aging, this paper suggests that large-scale housing sales following the predictable departure of large, older cohorts from the market could put significant pressure on house prices.
The second paper underscores how tax reforms can have substantial effects on households over the long run. This insight is particularly important because many countries, including Germany, are currently engaging in similar reforms.
Finally, the third paper demonstrates how restricting rental investors can lead to the gentrification of neighborhoods. The role of investors is highly debated on the public agenda, both in Europe and the United States. As such, this paper has had the broadest societal impact. Beyond widespread coverage, it has led to policy papers in Canada, the United States, and the Netherlands.
From a societal perspective, the first paper of this project highlights how demographic conditions remain a key driver of housing markets over the long term. With birth rates falling and the population gradually aging, this paper suggests that large-scale housing sales following the predictable departure of large, older cohorts from the market could put significant pressure on house prices.
The second paper underscores how tax reforms can have substantial effects on households over the long run. This insight is particularly important because many countries, including Germany, are currently engaging in similar reforms.
Finally, the third paper demonstrates how restricting rental investors can lead to the gentrification of neighborhoods. The role of investors is highly debated on the public agenda, both in Europe and the United States. As such, this paper has had the broadest societal impact. Beyond widespread coverage, it has led to policy papers in Canada, the United States, and the Netherlands.