Spatial inequality refers to unequal access to local public services between high-income and lowi... more Spatial inequality refers to unequal access to local public services between high-income and lowincome households in relation to their residential locations. We examine two hypotheses regarding the role of income sorting and land-use conditions in shaping spatial inequality in Chinese cities, where residents have little direct influence on local public service provision. First, in the presence of resource indivisibility, travel cost, and location-based rationing, scarcity of public-service resources in a city makes access to public services more uneven across neighborhoods, thus exacerbating income sorting and spatial inequality in the city. Second, the exacerbating effect of resource scarcity is mitigated by land-use conditions that limit income sorting. Estimates of willingness to pay by households of different income levels for public-service resources across cities corroborate both the exacerbating effect of resource scarcity and the mitigating effect of inclusive land-use conditions.
We advance the real-option-based empirical analysis of commercial real estate investment in three... more We advance the real-option-based empirical analysis of commercial real estate investment in three respects. First, we test several real option implications for real estate construction that have not been examined in the commercial real estate investment literature. In particular and in line with the predictions of real option models, we show that the effects of real interest rate and the expected demand growth on hurdle rent become more negative when the market volatility is greater. Second, we use a cointegrating vector of office employment and office stock to provide a better control of the demand for new construction than traditional indicators based on real estate prices and vacancy rates. Third, whereas the existing studies focus on the U.S. commercial real estate markets, we study two major office markets in Asia, namely Singapore and Hong Kong. We rely on the local stock market in the two city states to derive forward-looking measures of office demand growth expectations.
This paper develops a methodology to identify asset price response to news in the framework of th... more This paper develops a methodology to identify asset price response to news in the framework of the Campbell-Shiller log-linear present-value equation. We further show that a slow price adjustment in real estate markets not only induces a high serial autocorrelation in excess returns, but also dampens the return volatility and the correlation with excess returns in other asset markets. Using Hong Kong real estate and stock market data, we find that the quarterly real estate price assimilates only about half the effect of market news, whereas the quarterly stock price incorporates the news fully. Our analysis identifies a cumulative price adjustment that recovers lost information in real estate returns due to market inefficiency and thereby restores the real estate return volatility and the correlation between real estate and stock markets.
This paper reviews the urban redevelopment activities in Shanghai as the land market reforms were... more This paper reviews the urban redevelopment activities in Shanghai as the land market reforms were introduced. We focus on the impact of land use institutions on the spatial pattern of these activities. Sites for private real estate redevelopment were supplied by individual districts in the city. But the need for districts to pay for the resettlement of displaced residents contributed to a spatial mismatch between the supply of redevelopment sites and the market demand for commercial real estate space. Resettlement costs are highest at the high demand locations. State owned enterprises and institutions occupying land allocated by the state also engaged in real estate development. Whereas the density of private redevelopment was sensitive to the volume of commercial activities in a district, this does not appear to have been important in determining the location of the significant increase in the stock of commercial space resulting from development by local enterprises and institutions. This growth shows considerable decentralization between 1993 and 1996, 50 Fu, Somerville, Gu and Huang indicative of spatially inefficient redevelopment activities by land-rich state enterprises.
This paper investigates the role of speculators in the housing market, specifically their contrib... more This paper investigates the role of speculators in the housing market, specifically their contribution to price overreaction through positive feedback trading (or momentum trading). We exploit a unique data set of condominium transactions in a residential real estate market where transaction traits associated with short-term speculation can be identified. In the cross-section of housing projects, a 10-percentage-point increase in trading activity following a strong short-run market price rise predicts a negative subsequent monthly price change of 0.5% at the project level. Moreover, the price reversal effect associated with the momentum trading by short-term speculators is two to three times stronger, and holding such trading constant, momentum trading in general has little additional impact. Our findings further suggest that momentum trading by short-term speculators contributes to price overreaction largely in submarkets with lower information efficiency. The rapid rise and collapse of house prices in the United States that precipitated the 2008 Global Financial Crisis raised questions regarding the rationality of investor behavior in real estate markets. Studies of homebuyer expectations suggest general underreaction in short-term expectations of year-to-year home price changes, although long-term expectations appear consistently more optimistic (Case and Shiller 1988, Case, Quigley and Shiller 2003, Case, Shiller and Thompson 2012). More recent studies have focused on the behavior of short-term investors, or speculators who purchase with an intention for shortterm resale, and they find evidence of short-term trend chasing (i.e., positive feedback trading, momentum trading) by inexperienced speculators (Bayer, Geissler and Roberts 2011). There is also evidence of considerable heterogeneity in homebuyer expectations about short-term price trends (Piazzesi and Schneider 2009). Haughwout et al. (2011) find short-term investors become more prevalent in the market during the run-up to the 2008 financial crisis. Moreover, they relied heavily on nonprime borrowing to finance their highly
This article appeared in a journal published by Elsevier. The attached copy is furnished to the a... more This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and education use, including for instruction at the authors institution and sharing with colleagues. Other uses, including reproduction and distribution, or selling or licensing copies, or posting to personal, institutional or third party websites are prohibited. In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier's archiving and manuscript policies are encouraged to visit: http://www.elsevier.com/copyright
Human Capital Spillovers, Labor Migration and Regional Development in China
... spillover effects. While migration analyses in the extant literature largely focus on skill s... more ... spillover effects. While migration analyses in the extant literature largely focus on skill selectivity a la Roy (1951) and related labor market efficiency in moving human capital to regions with relative short labor supply (eg. Borjas ...
Restoring demand for commodity housing is crucial for the success of housing reform in previously... more Restoring demand for commodity housing is crucial for the success of housing reform in previously centrally planned economies; yet weaning workers away from publicly subsidized housing is a difficult task. Taking advantage of a unique survey, we show that the intention to buy commodity housing by Chinese urban workers is sensitive to various incentives, including housing mismatch, liquidity constraints, risk attitudes, access to publicly subsidized housing, and commodity housing prices. Our probit estimates indicate that the access to publicly subsidized housing is at least as important as the affordability of commodity housing in discouraging private home ownership.
THE SINGAPORE RESIDENTIAL PRICE INDEX [SRPI] WHITE PAPER: Basket-based Property Price Indexes for Singapore Non-landed Private Residential Properties
The Singapore Residential Price Index [SRPI] is a transactions-based index that tracks the month-... more The Singapore Residential Price Index [SRPI] is a transactions-based index that tracks the month-on-month price movements of private non-landed residential properties in Singapore. The rationale for creating the SRPI is two-fold. First, the SRPI provides a reference index for the development of property derivatives that would help expand the suite of financial products offered in Singapore, particularly in the context of managing portfolios and risks associated with direct real estate. Second, the SRPI complements existing property information on the state of the Singapore residential market. The SRPI is developed by the Institute of Real Estate Studies at the National University of Singapore [NUS IRES] with support from the Monetary Authority of Singapore [MAS], the Singapore Land Authority [SLA] and the Urban Redevelopment Authority [URA]. It benefited from discussions and consultations with local and foreign members of the finance and real estate community, real estate researcher...
assisted in data collection and processing. We gratefully acknowledge the financial support from ... more assisted in data collection and processing. We gratefully acknowledge the financial support from Research Grant Council CERG 9040249.
The traditional theory of urban land markets assumes perfect contestability-the absolute freedom ... more The traditional theory of urban land markets assumes perfect contestability-the absolute freedom of market entry-that compels developers to bid up the land rent to equal the economic profit from land use. This assumption, however, is empirically untested due to the difficulties in measuring the ex ante economic profit of land acquisition. We overcome these difficulties by applying the event-study methodology to Hong Kong government land auctions. When a developer acquires a site at a price below its fair market value, the rationality of the stock market entails a positive abnormal return on the developer's stock. Our analysis shows evidence of positive expected abnormal returns, indicating an imperfectly contestable land market. We further show that the expected abnormal return increases with the site value and the government land disposal level but decreases with the property market liquidity.
Restrictions on the density at which development can occur are a central tool of land use regulat... more Restrictions on the density at which development can occur are a central tool of land use regulation. Yet, they are understudied in the empirical literature. In this paper, we present a methodology to identify how much restrictions on the ratio of building space to lot area constrain developers. Our approach generates a measure of the distortion from the private optimum caused by restrictions as a function of land prices and the maximum allowed ratio of floor space to lot area. We use this methodology to examine how the set of incentives facing different levels of local government in Shanghai, China, affects density constraints on redevelopment sites in the city's emerging real estate market. ᮊ 2000 Academic Press I. INTRODUCTION Virtually every zoning law includes a limitation on the structural density, the ratio of building space to lot area, to which a parcel of land can be developed. Yet, the determinants and impacts of these density restrictions are poorly
Barriers to urban spatial development: Evidence from the 2010–2011 Christchurch earthquakes
Journal of Regional Science, Sep 1, 2021
Rational urban spatial development with durable structural capital entails discontinuous central ... more Rational urban spatial development with durable structural capital entails discontinuous central densification. Such densification can be held back by interdependent redevelopment incentives among adjacent landowners—a market failure that distorts spatial development. We investigate such distortion in Christchurch, New Zealand, by studying land‐value change across neighborhoods in the city before and after the 2010‐2011 earthquakes. We show that neighborhood‐wide loss in structural capital due to seismic hazard exposure raised land value in central neighborhoods but reduced it in non‐central ones. These divergent land‐value changes reflect the mitigation of spatial‐development distortion because of reduced barriers to neighborhood redevelopment.
Spatial inequality refers to unequal access to local public services between high-income and lowi... more Spatial inequality refers to unequal access to local public services between high-income and lowincome households in relation to their residential locations. We examine two hypotheses regarding the role of income sorting and land-use conditions in shaping spatial inequality in Chinese cities, where residents have little direct influence on local public service provision. First, in the presence of resource indivisibility, travel cost, and location-based rationing, scarcity of public-service resources in a city makes access to public services more uneven across neighborhoods, thus exacerbating income sorting and spatial inequality in the city. Second, the exacerbating effect of resource scarcity is mitigated by land-use conditions that limit income sorting. Estimates of willingness to pay by households of different income levels for public-service resources across cities corroborate both the exacerbating effect of resource scarcity and the mitigating effect of inclusive land-use conditions.
We advance the real-option-based empirical analysis of commercial real estate investment in three... more We advance the real-option-based empirical analysis of commercial real estate investment in three respects. First, we test several real option implications for real estate construction that have not been examined in the commercial real estate investment literature. In particular and in line with the predictions of real option models, we show that the effects of real interest rate and the expected demand growth on hurdle rent become more negative when the market volatility is greater. Second, we use a cointegrating vector of office employment and office stock to provide a better control of the demand for new construction than traditional indicators based on real estate prices and vacancy rates. Third, whereas the existing studies focus on the U.S. commercial real estate markets, we study two major office markets in Asia, namely Singapore and Hong Kong. We rely on the local stock market in the two city states to derive forward-looking measures of office demand growth expectations.
This paper develops a methodology to identify asset price response to news in the framework of th... more This paper develops a methodology to identify asset price response to news in the framework of the Campbell-Shiller log-linear present-value equation. We further show that a slow price adjustment in real estate markets not only induces a high serial autocorrelation in excess returns, but also dampens the return volatility and the correlation with excess returns in other asset markets. Using Hong Kong real estate and stock market data, we find that the quarterly real estate price assimilates only about half the effect of market news, whereas the quarterly stock price incorporates the news fully. Our analysis identifies a cumulative price adjustment that recovers lost information in real estate returns due to market inefficiency and thereby restores the real estate return volatility and the correlation between real estate and stock markets.
This paper reviews the urban redevelopment activities in Shanghai as the land market reforms were... more This paper reviews the urban redevelopment activities in Shanghai as the land market reforms were introduced. We focus on the impact of land use institutions on the spatial pattern of these activities. Sites for private real estate redevelopment were supplied by individual districts in the city. But the need for districts to pay for the resettlement of displaced residents contributed to a spatial mismatch between the supply of redevelopment sites and the market demand for commercial real estate space. Resettlement costs are highest at the high demand locations. State owned enterprises and institutions occupying land allocated by the state also engaged in real estate development. Whereas the density of private redevelopment was sensitive to the volume of commercial activities in a district, this does not appear to have been important in determining the location of the significant increase in the stock of commercial space resulting from development by local enterprises and institutions. This growth shows considerable decentralization between 1993 and 1996, 50 Fu, Somerville, Gu and Huang indicative of spatially inefficient redevelopment activities by land-rich state enterprises.
This paper investigates the role of speculators in the housing market, specifically their contrib... more This paper investigates the role of speculators in the housing market, specifically their contribution to price overreaction through positive feedback trading (or momentum trading). We exploit a unique data set of condominium transactions in a residential real estate market where transaction traits associated with short-term speculation can be identified. In the cross-section of housing projects, a 10-percentage-point increase in trading activity following a strong short-run market price rise predicts a negative subsequent monthly price change of 0.5% at the project level. Moreover, the price reversal effect associated with the momentum trading by short-term speculators is two to three times stronger, and holding such trading constant, momentum trading in general has little additional impact. Our findings further suggest that momentum trading by short-term speculators contributes to price overreaction largely in submarkets with lower information efficiency. The rapid rise and collapse of house prices in the United States that precipitated the 2008 Global Financial Crisis raised questions regarding the rationality of investor behavior in real estate markets. Studies of homebuyer expectations suggest general underreaction in short-term expectations of year-to-year home price changes, although long-term expectations appear consistently more optimistic (Case and Shiller 1988, Case, Quigley and Shiller 2003, Case, Shiller and Thompson 2012). More recent studies have focused on the behavior of short-term investors, or speculators who purchase with an intention for shortterm resale, and they find evidence of short-term trend chasing (i.e., positive feedback trading, momentum trading) by inexperienced speculators (Bayer, Geissler and Roberts 2011). There is also evidence of considerable heterogeneity in homebuyer expectations about short-term price trends (Piazzesi and Schneider 2009). Haughwout et al. (2011) find short-term investors become more prevalent in the market during the run-up to the 2008 financial crisis. Moreover, they relied heavily on nonprime borrowing to finance their highly
This article appeared in a journal published by Elsevier. The attached copy is furnished to the a... more This article appeared in a journal published by Elsevier. The attached copy is furnished to the author for internal non-commercial research and education use, including for instruction at the authors institution and sharing with colleagues. Other uses, including reproduction and distribution, or selling or licensing copies, or posting to personal, institutional or third party websites are prohibited. In most cases authors are permitted to post their version of the article (e.g. in Word or Tex form) to their personal website or institutional repository. Authors requiring further information regarding Elsevier's archiving and manuscript policies are encouraged to visit: http://www.elsevier.com/copyright
Human Capital Spillovers, Labor Migration and Regional Development in China
... spillover effects. While migration analyses in the extant literature largely focus on skill s... more ... spillover effects. While migration analyses in the extant literature largely focus on skill selectivity a la Roy (1951) and related labor market efficiency in moving human capital to regions with relative short labor supply (eg. Borjas ...
Restoring demand for commodity housing is crucial for the success of housing reform in previously... more Restoring demand for commodity housing is crucial for the success of housing reform in previously centrally planned economies; yet weaning workers away from publicly subsidized housing is a difficult task. Taking advantage of a unique survey, we show that the intention to buy commodity housing by Chinese urban workers is sensitive to various incentives, including housing mismatch, liquidity constraints, risk attitudes, access to publicly subsidized housing, and commodity housing prices. Our probit estimates indicate that the access to publicly subsidized housing is at least as important as the affordability of commodity housing in discouraging private home ownership.
THE SINGAPORE RESIDENTIAL PRICE INDEX [SRPI] WHITE PAPER: Basket-based Property Price Indexes for Singapore Non-landed Private Residential Properties
The Singapore Residential Price Index [SRPI] is a transactions-based index that tracks the month-... more The Singapore Residential Price Index [SRPI] is a transactions-based index that tracks the month-on-month price movements of private non-landed residential properties in Singapore. The rationale for creating the SRPI is two-fold. First, the SRPI provides a reference index for the development of property derivatives that would help expand the suite of financial products offered in Singapore, particularly in the context of managing portfolios and risks associated with direct real estate. Second, the SRPI complements existing property information on the state of the Singapore residential market. The SRPI is developed by the Institute of Real Estate Studies at the National University of Singapore [NUS IRES] with support from the Monetary Authority of Singapore [MAS], the Singapore Land Authority [SLA] and the Urban Redevelopment Authority [URA]. It benefited from discussions and consultations with local and foreign members of the finance and real estate community, real estate researcher...
assisted in data collection and processing. We gratefully acknowledge the financial support from ... more assisted in data collection and processing. We gratefully acknowledge the financial support from Research Grant Council CERG 9040249.
The traditional theory of urban land markets assumes perfect contestability-the absolute freedom ... more The traditional theory of urban land markets assumes perfect contestability-the absolute freedom of market entry-that compels developers to bid up the land rent to equal the economic profit from land use. This assumption, however, is empirically untested due to the difficulties in measuring the ex ante economic profit of land acquisition. We overcome these difficulties by applying the event-study methodology to Hong Kong government land auctions. When a developer acquires a site at a price below its fair market value, the rationality of the stock market entails a positive abnormal return on the developer's stock. Our analysis shows evidence of positive expected abnormal returns, indicating an imperfectly contestable land market. We further show that the expected abnormal return increases with the site value and the government land disposal level but decreases with the property market liquidity.
Restrictions on the density at which development can occur are a central tool of land use regulat... more Restrictions on the density at which development can occur are a central tool of land use regulation. Yet, they are understudied in the empirical literature. In this paper, we present a methodology to identify how much restrictions on the ratio of building space to lot area constrain developers. Our approach generates a measure of the distortion from the private optimum caused by restrictions as a function of land prices and the maximum allowed ratio of floor space to lot area. We use this methodology to examine how the set of incentives facing different levels of local government in Shanghai, China, affects density constraints on redevelopment sites in the city's emerging real estate market. ᮊ 2000 Academic Press I. INTRODUCTION Virtually every zoning law includes a limitation on the structural density, the ratio of building space to lot area, to which a parcel of land can be developed. Yet, the determinants and impacts of these density restrictions are poorly
Barriers to urban spatial development: Evidence from the 2010–2011 Christchurch earthquakes
Journal of Regional Science, Sep 1, 2021
Rational urban spatial development with durable structural capital entails discontinuous central ... more Rational urban spatial development with durable structural capital entails discontinuous central densification. Such densification can be held back by interdependent redevelopment incentives among adjacent landowners—a market failure that distorts spatial development. We investigate such distortion in Christchurch, New Zealand, by studying land‐value change across neighborhoods in the city before and after the 2010‐2011 earthquakes. We show that neighborhood‐wide loss in structural capital due to seismic hazard exposure raised land value in central neighborhoods but reduced it in non‐central ones. These divergent land‐value changes reflect the mitigation of spatial‐development distortion because of reduced barriers to neighborhood redevelopment.
Uploads
Papers by Yuming Fu