Browsing by Author "Vigdor, Jacob"
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Item Open Access Household Willingness to Pay for Improved Energy Efficiency in the U.S. Rental Housing Market(2012-05-03) Calcagni, GretchenIn the United States, the built environment is responsible for nearly 37 percent of the nation’s total energy consumption and around 70 percent of its electricity use. Residential buildings account for almost 21 percent of GHGs emitted in the U.S. Approximately 30 percent of homes in the U.S. are rental units and over 98 million U.S. residents are renters. This number is expected to increase by 360,000–470,000 annually between 2010 and 2020. Therefore, successful strategies for reducing energy consumption and GHG emissions must address energy efficiency in the residential sector, including rental housing. In addition to environmental implications, residential energy inefficiency is an economic issue. Home energy costs have been rising over the last several decades. Because energy represents a significant portion of housing-related expenses, efficiency stands to play a large role in the future of housing costs for individuals and communities. In the rental housing market, the split incentive problem is often described as a barrier to more energy efficient units. Landlords must pay the upfront cost for efficiency upgrades while tenants benefit in the form of reduced utility costs. However, in recognition of this benefit, tenants may be willing to pay a premium for their rent. If tenants are willing to pay significantly higher costs for more efficient housing, incentives are not truly split. Rather, landlords and developers lack full information about their return on investment for improved energy efficiency. Conversely, if tenants are not willing to pay a premium for improved levels of energy efficiency, additional strategies will likely be needed to address the split incentive problem and reduce this market failure. Hedonic regression results using a sample of 692,846 households participating in the 2010 American Community Survey suggest that households in the U.S. rental market are not willing to pay a premium for improved energy efficiency. Therefore, the split incentive problem represents an important barrier to overcome in order to improve energy efficiency in rental housing. Additionally, results suggest that there is variation in the value tenants place on efficiency for different segments of the rental market. Households living in larger rental units are willing to pay significantly more for improved energy efficiency than residents of smaller units. As a result of variation in household willingness to pay, improving efficiency in rental housing may require different approaches for different market segments. Developing effective solutions that reduce supply side and demand side barriers to improved energy efficiency will help to align incentives and regulate behavior to provide tenants with more energy efficient rental housing. Implications and strategies for Rocky Mountain Institute’s Superefficient Housing Initiative are explored.Item Open Access Incentivizing Responsible Small-Dollar Lending in Low-Income Communities(2012-04-20) Bansal, MeghaPOLICY QUESTION: “Based on results of pilot programs and policies implemented in other parts of the country, how can New York City/State best support and incentivize responsible small-dollar lending in low-income communities?” RECOMMENDATION: Design a borrower’s card system to collect information about consumers’ borrowing and repayment behaviors, to encourage lenders to extend loans to low-income individuals in need, and to incentivize consumers to take ownership of their own financial behavior. PROBLEM STATEMENT: In many states, the payday lending market has operated to meet the strong consumer demand for short-term small-dollar loans. In the realm of small-dollar lending, the payday lending market provides access for low-income individuals who might be classified as higher risk consumers, likely due to blemished credit histories. Lenders compensate for this higher risk by charging a higher interest rate, which would allow for the possibility that the borrower does not repay the loan. However, though the payday lending market is competitive, significant information asymmetries exist for both the lender and the borrower, which leave lenders unable to discern between high-risk and low-risk consumers, and leave borrowers with an unclear understanding of the terms of the loans and often, with increased amounts of debt. The reliance on payday loans poses significant problems for borrowers, however. Research has shown that consumers often are unable to repay within a single pay period and thus have to roll over their loan for another borrowing period, and accrue another fee. Therefore, for many borrowers, what starts off as a short-term loan turns into long-term payments because of rollover and chronic borrowing patterns. Furthermore, within the industry, only a few states seem to have a standardized database housing information on borrowing and repayment history for payday loan consumers. The lack of a centralized system makes it difficult to keep track of where consumers are originating their loans, how often they are taking out payday loans, and their true ability to repay. More responsible loan programs are characterized by a variety of criteria to ensure access to credit without trapping borrowers in additional debt. These characteristics include annual percentage rate caps, extended loan terms, multiple installment payment plans, proper underwriting of loans based on a borrower’s ability to repay, and financial counseling or a savings component. The tension in designing an alternative program is in balancing consumer need and incentive, market failures in information asymmetries, and business profitability concerns in order to meet the demand for these loans while not encouraging or incentivizing unscrupulous or predatory behavior. CRITERIA: 1) Minimize risk associated with consumers’ ability to repay loans: This criterion aims to reduce the risk associated with a consumer’s ability to repay by either better assessing consumer riskiness or ensuring that whatever consumer risk does exist does not prohibit or limit the potential for the loan to be repaid. 2) Provide incentive for lenders to make loans with a positive expected value: A viable alternative will provide the incentive for lenders to rationally extend a loan by reducing consumer risk, allowing lenders to better examine consumer risk, or by guaranteeing that they will be compensated for the risk associated with the population they are serving. 3) Provide incentive for consumers to improve behavior: A viable alternative should provide a mechanism by which consumers choose to improve their own repayment behavior, in order to ensure lenders receive the return on the loans that they make and continue to provide access to the small-dollar loans. 4) Maximize sustainability of program implementation: Any recommended program design should consider factors of sustainability, such as cost considerations, simplicity of implementation, political pushback, or scalability concerns. ALTERNATIVES: The following alternatives provide plausible program designs for a responsible small-dollar lending program. Each alternative is weighted against the specific criteria identified above. 1) Use a referral process to provide loans to approved low-income and/or high-risk consumers. 2) Design a borrower’s card system to collect information about consumers’ borrowing and repayment behaviors. 3) Fund a loan loss reserve pool to back loans made to low-income and/or high-risk consumers.Item Open Access Surprising Success Among Hispanic students(2006-06-12) Clotfelter, C; Ladd, Helen; Vigdor, JacobItem Open Access THE EFFECT OF THE FIRST-TIME HOMEBUYER TAX CREDIT ON HOME PRICES IN LOW AND MODERATE INCOME COMMUNITIES(2011-04-22) Schwinden, ChrisThe Center for Responsible Lending (CRL) is a Durham-based organization that works to promote homeownership and economic opportunity for low and moderate income communities and communities of color, which traditionally have been underserved by financial markets. Because of the steep decline in housing prices across the country, but especially in low and moderate income communities, CRL is interested in examining policies that can support housing prices in order to protect homeowner equity. The First-Time Homebuyer Tax Credit was a program that made a maximum $8,000 fully refundable tax credit available to first time homebuyers from February 2009 to May 2010. During that time, the Credit was expanded to include repeat homebuyers, as well. The Credit program was used extensively throughout 2009 and 2010, with over three million Credit claims made. Because the Credit was focused primarily on first-time homebuyers, who generally have smaller incomes and buy lower priced homes, this analysis examines the effect that the program had on lower tier of the housing market. The Credit’s effect on prices is a function of the relative elasticities of supply and demand for housing. In short, if supply is constrained, we would expect to see a larger effect of the Credit on prices, compared to when supply is more relaxed. Also, we would expect to see a larger effect of the Credit on lower priced homes; since the Credit was capped at $8,000, this amount would represent a larger share of the purchase price of lower priced homes compared to higher priced ones. When we see a house bought/sold during the Credit, in markets with relatively inelastic supply, we would expect the incidence of the Credit to go to sellers, as they would command a higher price. In markets with relatively more elastic supply, we would not expect prices to rise as much, and as a result, home buyers would gain relatively more from the Credit. ii Specifically, this paper examines the effect that the Credit had on houses prices in 16 major metropolitan areas before, during, and after the Credit. Through descriptive analysis, we see that these 16 metropolitan areas saw very different price movements before, during and after the Credit. In some markets, notably those that saw very high growth in the run-up to the housing crisis (e.g. California, and the Southwest), saw a steep decline in prices leading up to the Credit, and big jump during the Credit, and continued steep decline after the Credit. Other markets saw much more tempered price movements throughout. Also, some cities saw very different price movements based on the price tier. For example, the low price tier in Minneapolis saw a significant increase during the Credit period, but a much smaller increase in the middle and high tiers of the market. Overall, prices moved very differently depending on the city and market segment. I then turn models that control for other factors that may be influencing house prices, such as employment, income, population, and supply side constraints like housing permits and starts. Although the results vary base on the specific model used, this analysis concludes that the Credit did indeed have a significant effect on prices. Generally, the strongest effect of the Credit can be seen in the lower priced segments of the housing market, as the Credit represented a larger share of the purchase price of these types of houses. However, mid- and higher priced markets also generally saw an increase in price associated with the Credit. However, the effect of the Credit was short-lived. When the Credit expired in May 2010, house prices continued their decline. In short, it appears as though the Credit stimulated short term demand for housing, and may have increased the supply of housing, as well. One notable finding is that the increase in prices appears to be fairly significant, and perhaps, much more than we would expect from simple economic theory. This may indicate that iii homebuyers were motivated to get the Credit just for its own sake, even though in some cases, they may have been better off waiting for the market to cool, and for prices to fall even further.