CREPR Research Seminars: Autumn Term Update

It’s hard to believe we are now more than half way through the CREPR seminar series. After Professor Martin Hoesli kicked the series off for us in in early October with a fascinating insight into house price bubbles, we have enjoyed some great papers that demonstrate the breadth of research interests we share here in the School.

Following Professor Hoseli’s seminar we stuck with the theme of housing but shifted the focus from ‘bubbles’ to house price ‘booms’ with a paper by John M Clapp, Professor of Finance and Real Estate at the University of Connecticut entitled: ‘Housing Booms and the Return to Salient Fundamentals’. Professor Clapp’s co-authored paper uses repeat sales data to model the anchoring of fundamentals to the date of the first (house) sale. It introduces the idea of the ‘salient gap’ to represent the change between sales in market value minus the change in local fundamentals and, using data from Connecticut in the US, evaluates the relationship between probability of sale (and sales price) and the ‘salient gap’. The research shows that with a negative (price) gap, gains are discounted by 6%; this increases to 16% in the presence of a positive gap. With a negative or small positive gap the discount averages 8% compared with 11% in the presence of a large positive salient gap. The paper concludes that gains are important to the return to fundamentals during the peak and late stages of a boom, and that the response to a boom is asymmetrical with a bust. The paper was followed by a lively critical discussion with the audience offering comments on issues such as the issue of ‘un-observables’ in transactional data and the role of Federal government policy.

Next in the series was a paper from Dr Philip Black. Until recently, Philip was based here in Real Estate and Planning as a Researcher on the cycleBOOM study (www.cycleboom.org). Philip has recently moved to take up a Lecturership in Urban Design at the University of Manchester and we were delighted that he was able to come back to update us on the progress of a project he is running with Reading Borough Council called: ‘Cycling in Reading, an Urban Design Perspective’. The project uses a range of public engagement techniques to evaluate the level of quality cyclists and non-cyclists perceive in their localities. Philip presented some early findings which indicate that cyclists value some design features such as street clutter or signage quite differently from non-cyclists; this suggest that urban designers need to think quite carefully about how to configure urban environments, if accommodating cyclists’ needs is a goal. We also learnt that our very own Joe Doak was the inspiration for the research project!

On 11th November we were joined by Michael White, Professor of Real Estate Economics at Nottingham Trent University. Like Professor Clapp’s paper, Michael’s research considers the issue of property market variations, however here the focus was on the commercial office sector, rather than housing. The global focus also shifted; this time taking us all the way ‘Down Under’ to Australia via a comparative study of volatility in office sales and rental markets in Sydney and Melbourne. The paper uses quarterly data to examine market adjustment and test for symmetry in response to positive and negative exogenous shocks, and considers whether structural change may have occurred. The initial results suggest that there is symmetry in response to different external shocks, with structural change identified in one city impacting the long run trend value in the office market. The ensuing discussion was very engaging and included consideration of the quality of the data set and potential comparisons with cities in the northern hemisphere, including the impact of the global financial crisis on the office sector.

The final seminar in the series so far took us back to the issue of housing, and specifically the planning system’s ability to deliver affordable housing through planning obligations, in this case via ‘Section 106’ of the Town and Country Planning Act. Dr Sue Brownill, Reader in Urban Policy and Governance at Oxford Brookes University, presented the findings of a critical review of Section 106 she conducted for the Joseph Rowntree Foundation. Sue’s paper included a review of the operation of S106 mechanism, using national-level data and qualitative findings the research team assembled for a number of UK case studies. The paper showed the variations in S106’s ability to deliver affordable homes across both time and national geography. It also included examples of innovative or alternative practice from some local authorities delivering affordable homes outside of S106. Sue’s paper also raised a number of wider issues relating to recent planning system reforms, and a lively discussion about some of these measures – including those currently being passed under the new Housing Bill – continued well-beyond our allotted time-slot over coffee!

There are two more seminars still to come this term. On 2nd December Dr Dave Valler from Oxford Brookes University will present a paper on ‘Urban Development and the Politics of Dissonance’, with Dr Ludovic Halbert from Université Paris-Est closing the series on 9th December. We hope that you will be able to join us.

Please check back for further blog updates and also news of the forthcoming Spring-term seminars!

 

Dr Emma Street, CREPR Research Seminar Co-ordinator.

“Measuring House Prices Bubbles” with Professor Martin Hoesli, University of Geneva

In the first seminar of Centre of Real Estate and Planning Research (2015 Autumn), the research staff enjoyed a wonderful session “Measuring House Prices Bubbles” with Professor Martin Hoesli, University of Geneva.

‘House price bubbles’ are among the topics generating the most intense discussions in both academia and industry at present. Professor Hoesli’s research compares six different ways of housing bubble measurements. By adopting 10-year housing price data in six cities among US and Europe, the study tried to find precise and easy-to-adopt approaches to detect the occurrence of house-price bubbles. The study sets optimal pricing PV model as benchmark of bubble forecasting, and compare the movement of the following methods: Ratio Measurements (price-to-rent, price-to-income and imputed-to-actual-rent), Regression Model (fundamental-plus-theories regression, and VAR) and Growth Rate Model (Exponential rates of growth). Results show that most of the methods are positively correlated with the benchmark forecasting, but preciseness may differ between ex post and ex ante analysis. However, Prof Hoesli also mentioned that, as the inclusion of rent in benchmark method may already include bubbles, the forecast results of certain methods may “perform too well” as they correlated because of rent movement rather than accurate bubble forecasting. Meanwhile, data quality does impact upon the empirical result; interpolated data may to some degree affect the results. Therefore, subsequent studies may need to focus on the sensitivity of the forecasting result, as well as on data quality improvement.

During the Q&A section afterwards, Prof Hoesli exchanged ideas with the audience. For the recent trend that overseas investors boost housing prices in core areas i.e. residential market of London and Switzerland, Prof Hoesli pointed out the inability of traditional approaches on housing bubble measurement in the new condition. The current method is based on the price dispersion from fundamental value, which is forecasted by several domestic fundamental variables. As those fundamental factors can hardly capture the characters of foreign investors, this method may not fully apply to the current state. Although studies has been conducted about UK market (Black, Frazer and Hoesli, 2006, among others), it is still worthwhile to re-examine the new market trend.

Professor Martin Hoesli is Professor of Real Estate Finance in University of Geneva, and Professor of Finance in University of Aberdeen Business School. The Centre for Real Estate and Planning Research (CREPR) holds research seminar once a week. If you are not part of Henley Business School, and would like to attend a seminar, please email Dr Ruth Pugh (r.pugh@reading.ac.uk) as space is limited.

Find out more about our research and the work of the Centre for Real Estate & Planning Research.