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Essays on risk and housing
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.ORCID iD: 0000-0003-4849-0726
2009 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

There is a series of different types of risk on the housing market and related industries.  The six papers in this doctoral dissertation are about a number of the many dimensions of risk management on the housing market. The main message of this thesis is that it should be possible for different actors in the housing market to improve risk management. Indeed, the last years’ financial turmoil has revealed that it should not only be possible, but also necessary, to improve risk management at all levels of the economy: at household, corporate, regional, national and international level. Although the complexity of the environment in which we live and act makes it very difficult to predict and quantify risk, the development of risk management techniques should make it possible to better indentify, and reduce risk.

The first paper provides a systematic overview of a wide selection of methods or strategies used in different countries to expand but also to maintain home ownership among low income households. The second paper further discusses mortgage and home equity insurance instruments discussed in the first paper. This paper also discusses how a rental insurance policy, as an alternative to traditional rent regulation, may be constructed. Paper 3 develops a formula that might be used in order to value the rental insurance option discussed in paper 2. The fourth paper focuses on the housing building sector by discussing potential benefits of strategic alliances that the different actors in the housing construction market may establish in order to pool resources and manage development risks. The challenge of constructing reliable home price indexes has attracted scholars for many years. Paper 5 develops monthly quality-adjusted price indexes for condominiums (housing cooperative apartments) based on a unique dataset covering sales in the whole of Stockholm municipality from January 2005 to June 2009. Finally paper 6 pays attention to the large increase in housing cooperative conversions sine the 1990s, by deriving a closed-form valuation formula that might be used to value the embedded option an owner of a multi-family rental property has to sell it to a housing cooperative.

Place, publisher, year, edition, pages
Stockholm: KTH , 2009. , xv p.
Series
Trita-BFE, ISSN 1104-4101 ; 2009 : 87
Keyword [en]
housing risks, risk management, strategic alliances, housing construction, low-income housing, real options, tenure choice, rent regulation, housing cooperative conversion, price index
National Category
Economics Economics Economic Geography
Identifiers
URN: urn:nbn:se:kth:diva-11233ISBN: 978-91-977302-4-2 (print)OAI: oai:DiVA.org:kth-11233DiVA: diva2:244783
Public defence
2009-10-28, V2, Teknikringen 76, KTH, Stockholm, 13:00 (English)
Opponent
Supervisors
Note
QC 20100810Available from: 2009-10-08 Created: 2009-10-07 Last updated: 2010-08-10Bibliographically approved
List of papers
1. A survey of policies that may increase access to home ownership for low income households
Open this publication in new window or tab >>A survey of policies that may increase access to home ownership for low income households
2009 (English)In: Housing, Theory and Society, ISSN 1403-6096, E-ISSN 1651-2278, Vol. 26, no 4, 248-270 p.Article in journal (Refereed) Published
Abstract [en]

This review article presents a systematic overview of strategies that may make home ownership affordable to more low-income households. Home ownership has been regarded as the preferred choice of tenure by most OECD countries for many decades and has often been supported with a wide range of methods that make ownership economically attractive. There are four distinct time periods of a typical “housing career”: (1) down payment accumulation stage, (2) transaction stage, (3) ownership stage and (4) selling stage. Although home ownership rates have been on the increase globally since the Second World War, recent signs indicate that this trend has been halted. However, it is argued that little is known on the actual effectiveness of most of the described policies and that a set of policies, focusing on at least the first three stages above, is needed should a government wish to encourage home ownership. Moreover, direct subsidies and grants are probably not very interesting considering the weak financial situation of most governments. Thus, selected policies would probably focus on the ability of the households to signal their characteristics and on strengthening various insurance markets so that they become open to more households at a reasonable price.

Keyword
Government policies; Home equity; Home ownership; Low-income housing; Mortgages
National Category
Economics Civil Engineering
Identifiers
urn:nbn:se:kth:diva-11235 (URN)10.1080/14036090802614479 (DOI)2-s2.0-71649104929 (Scopus ID)
Note
QC 20100810Available from: 2009-10-09 Created: 2009-10-09 Last updated: 2017-12-13Bibliographically approved
2. Mortgage and home equity insurances for home owners and rental insurancefor tenants
Open this publication in new window or tab >>Mortgage and home equity insurances for home owners and rental insurancefor tenants
2009 (English)Report (Other academic)
Abstract [en]

Households face many different kinds of risks that are related to ownership and tenancy. Forinstance, home owners face both financial and capital risk, whereas tenants face risks relatedto rent level. The present paper focuses on mortgage and home equity insurance instruments for home owners, and rent insurance instruments for tenants. Mortgage and home equityinsurances might improve both households’ as well as lenders possibilities to manage risksrelated to home purchases, financial commitments and lending. Mortgage insuranceinstruments aims at mitigating the risk of mortgage default and loan losses resulting from a foreclosure process, while home equity insurance provide protection against capital losses.Furthermore, these insurance instruments might also be usable for expanding home ownershipfor low-income households. This paper also discusses a rental insurance policy as analternative to traditional rent regulation. A main feature of this policy is that landlords are supposed to be obliged to offer tenants rental insurance against strong increases in marketrents

Publisher
34 p.
Keyword
Home ownership, low-income housing, mortgage insurance, housing policy, home equity insurance, rent insurance
National Category
Economics Civil Engineering
Identifiers
urn:nbn:se:kth:diva-11236 (URN)
Note
QC 20100810Available from: 2009-10-09 Created: 2009-10-09 Last updated: 2010-11-30Bibliographically approved
3. The valuation of residential rental options
Open this publication in new window or tab >>The valuation of residential rental options
2009 (English)Report (Other academic)
Abstract [en]

This paper develops a formula for pricing a residential option with respect to a tenant’s so called outside option in which two new parameters are introduced; the tenant’s transactioncost of moving and moving threshold. This formula is then used to compute numerical examples of the option price for different parameter values. We believe that the pricingformula developed in this paper provides a potentially useful way of conceptualizing howhouseholds actually might think when considering buying an option. The numerical examples show that the value of the option increases with higher transaction cost of moving, and decreases with higher moving threshold. With a low moving threshold (i.e. a liquidityconstrained household) and/or a high transaction cost of moving, the rental option may have a high value for this household. This value might therefore be higher than the option value calculated the standard way, i.e. without the transaction cost of moving, and moving thresholdparameters. Naturally, the opposite situation occurs for a household with a high moving threshold and/or a low transaction cost of moving.

Publisher
44 p.
Keyword
rent regulation, rent control, rent insurance, rental option, real option
National Category
Civil Engineering Economics
Identifiers
urn:nbn:se:kth:diva-11237 (URN)
Note
QC 20100810Available from: 2009-10-09 Created: 2009-10-09 Last updated: 2010-11-30Bibliographically approved
4. Pooling of resources in housing development through strategic alliances:Theoretical framework and options for the Swedish market
Open this publication in new window or tab >>Pooling of resources in housing development through strategic alliances:Theoretical framework and options for the Swedish market
2009 (English)Report (Other academic)
Abstract [en]

The purpose of this paper is to discuss different types of strategic alliances that a developer might establish in order to undertake risky development projects. Individual developers aswell as cities and municipalities can become more competitive by mobilizing resources andallocating risks efficiently. Based on the general literate on strategic alliances, we argue that developers and other actors in the development process may realize a large number of potential benefits of alliance activity. Strategic alliances can be designed to meet criticalresource and risk management needs of a residential developer throughout a typical development process.

Publisher
54 p.
Keyword
Strategic alliances, housing finance, construction
National Category
Economics Civil Engineering
Identifiers
urn:nbn:se:kth:diva-11238 (URN)
Note
QC 20100810Available from: 2009-10-09 Created: 2009-10-09 Last updated: 2010-08-10Bibliographically approved
5. Improved price index for condominiums
Open this publication in new window or tab >>Improved price index for condominiums
2009 (English)Report (Other academic)
Abstract [en]

This paper proposes a price index construction methodology that can increase the quality ofprice index data for condominiums in Sweden. Currently, officially published market priceindexes for condominiums and houses in Sweden suffer from a number of shortcomings.Notably they do not control for quality, or they are based on dates when transfer of ownershipof the home occurs, and not the contract date. We develop a new price index that both controlsfor quality and reflect most recent price levels and changes. With access to a unique databasewe estimate alternative hedonic price indexes, and compare them both between themselves, aswell as with arithmetic mean and median price indexes. However, there is a trade-off betweencontrol of quality, access to the most recent transactions, and market coverage on one hand, andease of construction on the other hand.

Publisher
28 p.
Keyword
Apartment, price index, moving window regression, spatial econometrics, contract date
National Category
Economics Civil Engineering
Identifiers
urn:nbn:se:kth:diva-11239 (URN)
Note
QC 20100810Available from: 2009-10-09 Created: 2009-10-09 Last updated: 2010-08-10Bibliographically approved
6. Valuing the housing cooperative conversion option
Open this publication in new window or tab >>Valuing the housing cooperative conversion option
2009 (English)Report (Other academic)
Abstract [en]

Since the 1990s, both private and municipal owners of multifamily rentalproperties in Sweden have sold a large number of their properties to hous-ing cooperatives established by the property's tenants. One motivationfor the large increase in so called housing cooperative conversions is thatthe practice of rent regulation causes actual rents to be lower than market-clearing rent levels, especially in attractive areas in larger cities. By sell-ing the property to a housing cooperative, the property owner can takeadvantage of the positive price di®erence between the price of housing co-operative dwellings, which are determined by demand and supply, and thevalue of the property based on the assumption that the rents will continueto be lower than market rents.In this paper we use a real options approach to derive a closed-formvaluation formula for the option an owner of an income producing multi-family property has to sell it to a housing cooperative. In traditionaloption valuation models, the date when the option matures is known inadvance. However, it is common that the property owner does not knowin advance when the tenants (through the housing cooperative) will buythe property. In this paper we let the expected time to maturity, which isthe day when the tenants purchases the property from their landlord, tobe a random variable. The numerical examples suggest that the value ofthe conversion option increases as expected time to conversion increases,as well as when the volatility of the price of housing cooperative proper-ties increase. The real options approach suggested in this paper may beespecially useful to explicitly conceptualize the problem of valuing a rentalproperty with embedded options to switch it to another type of property.

Publisher
20 p.
Keyword
Real options, property valuation, rent regulation, housing cooperative conversion
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-11240 (URN)
Note
QC 20100810Available from: 2009-10-09 Created: 2009-10-09 Last updated: 2010-08-10Bibliographically approved

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