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Federal Reserve Banks of Atlanta and Dallas Conference Explored Housing, Urban Economics

Christopher Cunningham, Jessica Dill, W. Scott Frame, Kristopher Gerardi and Joseph Tracy

January 25, 2022

Residential real estate prices rose sharply throughout the United States following the onset of COVID-19 in early 2020. While property owners received a capital gains windfall, first-time buyers and renters have struggled with reduced affordability.

These themes were explored during a virtual conference hosted by the Federal Reserve Banks of Atlanta and Dallas in December 2021. The program was anchored by a fireside chat with Atlanta Fed President Raphael Bostic and Harvard University Economics Department Chairman Edward Glaeser.

Regulations and Housing Supply

Supply restrictions play an important role in housing affordability. Zoning restrictions, for example, regulate the construction of housing, including the type and quantity, in a particular area.

Jonah Rexer (School for Public and International Affairs, Princeton University) presented research aimed at estimating the economic value of zoning reform. He and his co-authors used granular data from Sao Paulo, Brazil, to generate estimated supply responses to a policy change that increased allowable density. The results indicate that, on average, the policy led to a 2.2 percent increase in the total housing stock and a 0.5 percent decline in home prices. However, house price losses faced by existing homeowners and landlords overshadowed all consumer welfare gains.

A paper by Jacob Krimmel (Federal Reserve Board of Governors) examined the loss of local control over public-good financing—for example, statutory limits on property tax increases—as a cause leading to increasing housing-supply restrictions.

He tests his conjecture using data from California’s mid-1970s school finance equalization that prevented jurisdictions from increasing property taxes to meet their desired level of education spending. He finds that school districts that previously benefited most from local control of education funding enacted more-stringent land-use controls and built less housing after the school finance reforms were enacted. Krimmel also presented evidence suggestive of the exclusionary effects: home prices increased, and minority population share decreased in wealthy school districts.

Differences in Housing Returns and Property Taxes

Housing wealth represents a significant proportion of most households’ overall wealth. The Survey of Consumer Finances indicates that minority households accumulate much less housing equity over their lifecycles than white households. Understanding the factors that contribute to this disparity is important to designing policies to raise minority households’ wealth accumulation.

Francis Wong (National Bureau of Economic Research) presented analysis that documents the existence of racial disparities in returns to housing, driven almost entirely by differences in distressed home sales (foreclosures and short sales). The paper finds that Black and Hispanic homeowners are both more likely to experience a distressed sale and to live in neighborhoods where distressed sales erase more housing value. Wong presented evidence that the greater likelihood of financial distress for minorities is principally related to higher income instability and lower liquid wealth.

Research by Natee Amornsiripanitch (Philadelphia Fed) examined the regressivity of local property taxes owing to systematically poor valuations by local tax assessors. The author finds that cheap houses are over-assessed relative to expensive houses, a pattern attributed to tax assessors’ flawed valuation methods and infrequent reappraisal practices.

COVID-19 Impacts on Real Estate

The federal mortgage forbearance program for homeowners and state and local eviction moratoriums for renters moderated the economic disruption associated with the onset of the pandemic. Large-scale fiscal and monetary policy support contributed to rapidly increasing house prices and rents across the U.S. Changes in household preferences for space also resulted in changes to relative housing costs within local markets.

A paper by Arpit Gupta (New York University Stern School of Business) documents pandemic-prompted declines in house prices and rents in city centers and increases in house prices and rents away from the center. This had the effect of flattening the “bid-rent” curve—the negative relationship between housing costs and distance to a primary employment center—in most U.S. metropolitan areas. The author finds that this flattening of the bid-rent curve is larger in areas that have a higher presence of jobs that can be done from home, more-stringent pandemic lockdown measures and lower housing-supply elasticity owing to physical or regulatory barriers to development.

Finally, Nitzan Tzur-Ilan (Dallas Fed) discussed research that investigates the impact of 2020 COVID-19 rental eviction moratoriums on household well-being. She and her co-authors found that reduced evictions resulted in a redirection of household financial resources to immediate consumption needs, particularly food and grocery spending. The paper also presented evidence that eviction moratoriums reduced household food insecurity and mental stress, with larger effects evidenced among African American households. The paper does not explore any implications of the income loss to landlords.

Springboard to Further Research

The combination of empirically rigorous research papers on policy-relevant topics and high-quality discussions, along with the fireside chat, produced a memorable two-day conference on housing and urban economics. This will hopefully act as a springboard for increased dialogue around the housing affordability challenges and racial disparities that characterize the U.S. housing market.

About the Authors

Christopher Cunningham

Cunningham is a research economist and associate advisor in the Research Department at the Federal Reserve Bank of Atlanta.

Jessica Dill

Dill is the director of the Center for Housing and Policy in the Research Department at the Federal Reserve Bank of Atlanta.

W. Scott Frame

Frame is a vice president in the banking and finance group in the Research Department at the Federal Reserve Bank of Dallas.

Kristopher Gerardi

Gerardi is a financial economist and senior advisor in the Research Department at the Federal Reserve Bank of Atlanta.

Joseph Tracy

Tracy is executive vice president and senior advisor in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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