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Research Papers

Residential Property Assessed Clean Energy (PACE) loans are a new class of financial contract, whereby homeowners borrow to fund green residential projects and repay the loan via their local property tax payments. We assess equity-efficiency trade-offs of PACE using loan-level data from Florida merged to property transaction, tax, and permitting records. Consistent with the program’s objectives, borrowers are more likely to obtain permits related to disaster-proofing homes, and loan takeup is concentrated in areas with higher ex ante and ex post natural hazard risk. Such investments are capitalized into home values, but expansions of the property tax base are partially offset by an uptick in tax delinquency rates among borrowers. Although PACE loans are super senior to other debt, lenders expand their provision of mortgage credit in PACE-enabled counties. Enabling PACE loans increases the fiscal income of participating local governments while closing the investment gap in projects which improve the climate resiliency of the housing stock.

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Local governments recover revenues from overdue tax bills by auctioning off super senior claims to homes at semi-annual tax lien or tax deed sales. Using detailed data on over 18,000 tax lien sales linked to owners’ overdue tax payment histories, I document tax liens sell at a much larger haircut than mortgage foreclosed homes – for less than 10% of ex ante assessed value in the vast majority of cases. Prices of homes neighboring a tax lien sale property, on average, decline within the first two years of the sale. However, in gentrifying areas, large positive pricing spillovers emerge within three years, driven by investors’ conversion of former tax lien properties into luxury housing and commercial amenities. Underrepresented minority homeowners are more likely to be displaced by tax delinquency and less likely to transact homes in areas containing recent tax sales to institutional buyers. Private capital’s presence in the municipal finance ecosystem has amplified gentrification and the within-city Black-white wealth gap.

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Spatially Targeted LTV Policies and Collateral Values  (slides)   [March 2024]

with Chun-Che Chi & Ming-Jen Lin

Reject & Resubmit at Journal of Finance

Twitter/X thread

Many governments regulate household leverage at a national level, even when credit and housing market conditions vary substantially across locations. We explore the efficacy of loan-to-value (LTV) limits targeting specific neighborhoods as a macroprudential policy designed to curb local house price growth. We combine administrative data from Taiwan covering the universe of mortgage loans, personal income tax returns, a public database of geocoded housing transactions, and bank balance sheets. Applying a series of matched difference-in-differences and border difference-in-discontinuity designs, we find that leverage limits are effective at reducing local house prices in expensive, high-income neighborhoods, without reducing delinquency rates or inducing mortgage credit rationing. We uncover two kinds of efficiency costs associated with place-based mortgage restrictions: (i) commuting costs driven by homeowners sorting into neighborhoods where credit is easier to obtain, and (ii) mispricing due to banks and prospective home buyers reporting inflated appraisals to avoid the limits.

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I use a natural experiment in 1980s Japan to provide evidence of the feedback loop between corporate borrowing and commercial property investment emphasized in macro-finance models with collateral constraints. Following national land use deregulations, firms located in previously land use constrained areas borrowed and invested more in real estate, reinforcing the initial positive shock to land values. I develop a multi-city spatial model with real estate collateral which uses reduced form estimates of the deregulation on firm outcomes to assess aggregate policy effects. The deregulation and corporate borrowing frictions together amplified the aggregate cycle and promoted growth in superstar cities.

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Housing affordability concerns have led policymakers worldwide to consider transfer taxes targeting speculators. We estimate optimal taxes on property flips using a heterogeneous investor model which extends the intuition for imposing financial transaction taxes, or Tobin taxes, to the housing market. Our framework incorporates investors’ housing tenure choice, search costs, and heterogeneity in investment horizon. We calibrate the model using responses to a 2011 Taiwan sales surcharge levied on investment properties flipped within two years. Linking the universe of income tax returns to transaction records, we show the tax generated a 40% drop in second home sales volume. The resulting optimal flip tax is 4%, which is close to the flat transfer tax rates imposed in global real estate markets. Consistent with empirical findings, the model predicts imposing higher sales taxes on second homes increases house price levels but entails large welfare gains for renters on the margin of homeownership. 

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Growing spatial inequality has led policymakers to enact tax breaks to attract corporate investment and jobs to economically peripheral regions. We demonstrate the importance of multi-plant firms' physical capital structure for the take-up and efficacy of industrial place-based policies by studying a national bonus depreciation scheme in Japan which altered the relative cost of capital across locations, offering high-tech manufacturers immediate cost deductions from their corporate income tax bill. Combining corporate balance sheets with a registry containing investment by plant location and asset type, we find the policy generated big gains in employment and investment in building construction and in machines at pre-existing production sites. The policy produced a welfare gain of $56.72 billion, or 40% of total annual corporate profits. For eligible firms, plant-level hiring in ineligible areas outstripped that in eligible areas, suggesting reallocation of resources within firms' internal capital and labor markets mitigates the spatial misallocation inherent in subsidizing low productivity areas.

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How governments should choose the frequency of payments has received little attention in the literature on the optimal design of benefits programs. We propose a simple model in which the government chooses the interval length between payments, subject to a tradeoff between administrative costs of providing more frequent benefits and welfare gains from mitigating recipients' consumption non-smoothing. Using a high-frequency retail dataset that links consumers to their purchase history, we apply the model to the Japanese National Pension System. Our evidence suggests suboptimal intra-cycle consumption patterns, with negligible retailer price discrimination. Our model calibrations support the worldwide prevalence of monthly payment schedules -- even under extreme assumptions about preferences, and regardless of consumers’ underlying behavioral frictions. For governments facing rapidly aging populations, our results imply lowering pension payment frequency may be a budget-preserving alternative to raising retirement age thresholds.

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This paper documents heterogeneous spending out of a large stimulus tax rebate by exposure to the 1980s Japanese housing market turbulence. Linking geocoded household expenditure and financial transactions data to a new set of local housing price indices in Japan, we estimate a U-shaped pattern in the marginal propensity to consume with respect to housing price growth. Recipients living in areas with the smallest housing price gains during the 1980s spent 47% of the 1994 rebate within three months of payment, compared to 24% among recipients in areas which experienced the largest housing price gains. We find limited heterogeneity in marginal propensities to consume among households in less affected areas, but MPCs are higher for younger, renter households with no debt residing in more affected areas. Our results are consistent with near-rationality rather than a liquidity constraint story. Winners who are less exposed to housing risk respond more to payments, implying policies which target losers from housing market downturns may be less effective at stimulating consumption.

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Works in Progress

Housing Is the Financial Cycle: Evidence from 100 Years of Local Building Permits [draft coming soon!]

with Gustavo Cortes

Housing market conditions are often used as leading indicators of real business cycles. Does the housing market also lead the financial cycle? We address this question by applying deep learning OCR techniques to create a new hand-collected database spanning a century of monthly building permit quantities and valuations for all U.S. states and the 60 largest MSAs. We show that the option to build embedded in permits renders volatility in residential building permit growth (BPG) a strong predictor of aggregate and cross-sectional stock and corporate bond return volatility. This predictability remains even after conditioning on a battery of factors, including corporate and household leverage and firms' exposure through their network of plants to other localized physical risks like natural disasters. Cities with more elastic housing supply consistently predict financial market downturns at 12-month horizons, resulting in new trading strategies to hedge against overbuilding risk.

Property Tax Policy and Housing Affordability [in preparation for National Tax Journal]

with Emily Horton, Byron Lutz, Nathan Seegert, & Jared Walczak

We examine property tax reduction as a tool for increasing housing affordability. Analyzing various tax reduction policies through the lens of property tax incidence reveals a complex relationship between affordability and property taxes, with differential effects across demographic groups. Many policies often fail to improve affordability for young first-time homebuyers and renters, sometimes worsening affordability. We present a new nationwide atlas documenting the prevalence of local measures altering property tax burdens. Quasi-experimental evidence from Georgia's homestead exemption valuation freezes suggests strong capitalization of property tax relief into home values, reinforcing that property tax relief may worsen affordability for first-time buyers.

Corporate Responses to Place-Based Policies 

[in preparation for Oxford Research Encyclopedia of Economics and Finance]

Putting on the Ritz: Tax Increment Financing, Eminent Domain, and Local Economic Development

with Alina Arefeva & Evan Mast

Interest Rate Caps, Relationship Lending, and Bank Competition: Evidence from Bangladesh

with Yusuke Kuroishi & Yuhei Miyauchi

The Aggregate Consequences of Financial Mistakes: Evidence from Mortgage and Property Tax Delinquencies

Cross-Subsidization in Public vs. Private Lending Submarkets: Evidence from Reverse Mortgages

with Adam Jørring & Erik Mayer

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