REP Research Roundup: January 2024

News from the Department of Real Estate & Planning

Departmental News
REP has recently appointed two new staff members. They are:

• Dr Claire Xiaoying - Associate Professor of Real Estate and Finance
• Dr Simon Thaler - Lecturer for Real Estate 

University News for Research Engagement
The University's Community Festival will return this year on Saturday 18 May. The Festival brings together local residents, alumni, community groups and small businesses for a programme of live music, theatre and performance, community stands, crafts, street food, and research activities. Last year’s programme included a research exhibition featuring stands with hands-on activities, children’s talks, research talks, and a multilingual storytelling activity. The activities were popular and well received by both visitors and participants, and this year’s festival aims to expand on these activities and attract new audiences.

Please mark the date in your diaries to get to know of research at the University of reading and to participate in research at Reading.

Publications

Bao, Helen X.H. , Wang, Ziyou and Wu, Robert Liangqi (2024) Understanding local government debt financing of infrastructure projects in China: evidence based on accounting data from local government financing vehicles. Land Use Policy, 136.
Abstract
This study develops an analytical framework to investigate the complex relationship between local government debt issuing for infrastructure financing, state control, land finance, and development activities in the private sector in China. Using local government financing vehicles’ accounting data, we find that local governments are working creatively to meet infrastructure development targets handed down by the central government. Moreover, local government financing vehicles became more responsive to development activities from the private sector in their debt-issuing decisions after the regulations of local government debt issuing in 2013/14. By modelling the effect of three distinct forces, i.e., the central government, local governments, and the market, in one unified framework, our study provides reliable evidence of how infrastructure financing works in China. Our research extends the studies of land finance into the infrastructure development domain. The findings are also helpful for studies on China's land use policy under its leasehold land right system, particularly the impacts of different land planning uses on infrastructure development.

Bragaglia, Francesca and Parker, Gavin (2023) The role and significance of planning consultants as intermediary-actors: between and amongst government, civic society and the market. International Planning Studies (In press)
Abstract
The paper discusses the role of private planning consultants as intermediary-actors and their implications in relation to planning theory and practice. To do so, the paper focuses on niche consultants involved in servicing neighbourhood scale plan-making in England, clarifying that they hold crucial agency in local planning processes and adding to the understanding of consultancy roles and co-production dynamics in planning. The paper draws together the literature on private sector consultancy and on intermediaries, along with theoretical work highlighting the diversification of planning, the rise of the collaborative turn and the effect of regulation on creating niche markets in planning expertise. The conclusions drawn help clarify the ‘action on others’ that planning consultants, as intermediary-actors, have in collaborative governance and planning in and beyond neighbourhood planning.

Carozzi, Felipe , Hilber, Christian A.L. and Yu, Xiaolun (2024) On the economic impacts of mortgage credit expansion policies: Evidence from help to buy. Journal of Urban Economics (In press)
Abstract
We take advantage of two spatial discontinuities in Britain's Help to Buy (HtB) scheme to explore the effectiveness and distributional implications of mortgage credit expansion policies. Employing a Difference-in-Discontinuities design, we find that HtB significantly increased house prices and had no detectable effect on construction volumes in severely supply constrained and unaffordable Greater London. Conversely, HtB did increase construction numbers without a noticeable effect on prices near the English/Welsh border, an affordable area with comparably lax supply conditions. While HtB did not help would-be-buyers in already unaffordable areas, it boosted the financial performance of developers participating in the scheme.

Deng, X.  Liu, C. and Ong, S. E. (2022) Shadow bank, risk-taking, and real estate financing: evidence from the online loan market. Journal of Real Estate Finance and Economics (In Press)
Abstract
This paper examines whether and how individual risk-taking behavior affects real estate financing through shadow banks. Using the loan data from an online platform in China, we show that riskier households tend to employ online loans to meet the increasing down-payment in their home purchase. Individual investors are likely to fund riskier real estate loans with higher expected returns. Real estate loans experience higher ex-post default rates than other types of loans. The effect is more pronounced during the period of credit constraints.

Deng, X. , Anglin, P. M. , Gao, Y. and Sun, H. (2021) How do the CEO political leanings affect REIT business decisions? Journal of Real Estate Research, 43 (4). pp. 419-446
Abstract
Business decisions made by the real estate industry have a profound effect on the well-being of people who live, work, or shop in these buildings. While these decisions may be informed by evidence, the available evidence is often incomplete or imperfect. Therefore, the personal opinions or judgments of senior executives can have an effect. In this paper, we study these effects in two parts: risk-taking and environmental, social, and governance (ESG) activities. Since a person’s political learning is a relatively stable measure, and is associated with preferences for risk and ESG activities, we examine how the political leanings of the CEOs are related to these effects. Using the data from 2003 to 2016, we find that real estate investment trusts with Democratic-leaning CEOs tend to take more risks, as evidenced by higher levels of leverage and more risk in stock prices. We further find that Democratic-leaning CEOs are more broadly engaged in environmentally oriented ESG activities.

Deng, X. and Ong, S. E. (2018) Real earnings management, liquidity risk and REITs SEO dynamics. The Journal of Real Estate Finance and Economics, 56 (3). pp. 410-442
Abstract
We analyze how REITs managers use real earnin gs management to address issues of liquidity risk and increased cost of capital they face during seasoned equity offerings. We show that REITs managers engage in real earnings management instead of accrual earnings management to attract more uninformed trading in order to provide the liquidity service at a lower cost during seasoned equity offerings. We find REITs with higher liquidity risk are more likely to manipulate earnings prior to equity offerings and uninformed trading is higher following real earnings management. Firms set the offer price at a smaller discount after engaging in real earnings management and stock returns decline in the long run. The findings are consistent with real option and liquidity risk explanations for equity offerings.

Deng, X. , Hrnjic, E. and Ong, S. E. (2014) Investor sentiment and the SEO pricing process: evidence from REITs. The Journal of Real Estate Portfolio Management, 20 (2). pp. 85-110
Abstract
Using real estate investment trusts as a unique laboratory, we investigate the impact of investor sentiment on seasoned equity offering (SEO) price dynamics. Evidence indicates that investor sentiment is positively related to pre-SEO overpricing and probability of issuance. SEOs issued in high sentiment periods have larger discounts and higher first day returns. We also find that high sentiment periods are followed by low long-run returns, suggesting that sentiment does not proxy for unobservable fundamentals. Overall, our findings are consistent with market timing and behavioral explanations for equity offerings.

Deng, X. , Ong, S. E. and Qian, M. (2018) Real estate risk, corporate investment and financing choice. The Journal of Real Estate Finance and Economics, 57 (1). pp. 87-113
Abstract
This paper empirically examines how real estate risk impacts corporate investment and financing decisions. Using a panel of United States firms from 1985 to 2013, we document that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. The results are robust to different risk measurements and in particular salient during the financial crisis period when the endogeneity between risk and investment is less of a concern. The effect on firm leverage, however, depends on risk measures. Overall, in contrast to previously documented positive effects of the real estate value, real estate risk exposure exhibits mostly the opposite effects on investment, financing and capital structure. This difference is consistent with option value determinants. Findings in this paper shed new lights on the impact of real estate holding on corporate decisions, offer a new explanation for the underperformance of hedge funds’ real estate strategies, and confirm the theoretical predictions in Deng et al. (2015).

Fan, G.-Z. , Pu, M. , Deng, X. and Ong, S. E. (2018) Optimal portfolio choices and the determination of housing rents under housing market uncertainty. Journal of Housing Economics, 41. pp. 200-217 
Abstract
This study proposes a utility indifference-based model to investigate the pricing issue of house rents under housing market uncertainty. Our model not only allows for the crucial features in the housing market, such as market incompleteness and high idiosyncratic risk, but also the interaction of households’ house tenure choices with their financial asset holdings. Our model provides interesting insights into the hedging of house market risk and determination of housing rents. In addition to the parameters describing the expected changes and volatility on stock and house returns, we also show that individual precautionary savings motive, idiosyncratic risk premium, and the correlation between stock and housing have important implications for the determination of housing rents. We also test the model predictions empirically using the data from major Asian markets and the empirical results better support the model predictions.

Nicholls, Victor and Street, Emma (2023) Bracknell — lessons in new town centre regeneration. Town and Country Planning. (In Press)
Abstract
Victor Nicholls and Emma Street look at the key elements of the regeneration of the town centre of Bracknell—so far the only ‘Mark One’ British New Town centre to have been substantially redeveloped—and outline the lessons offered by Bracknell’s regeneration story for practitioners and others interested in planning and delivering the renewal of urban centres, including those working in New Towns.

Parker, G. and Dobson, M. (2023) The temporal governance of planning in England: planning reform, Uchronia and ‘Proper Time'. Planning Theory (In press) 
Abstract
Attention to the multiple temporalities of planning has gained recent further traction in the planning literature, and time is clearly implicated in how power and resources are combined in the governance of the built and natural environment. Time, and specifically the management of clock time, shapes planning practice. Moreover successive reform agendas in England have drawn heavily on temporal framings of ‘speed’, ‘efficiency’ and ‘delay’ as part of a neoliberal ‘timescaping’ deployed to promote growth. We discuss time theory in application to planning to contrast the opposing uchronic or perfect timescapes, balanced between neoliberal ideology and normative principles underpinning proper time for planning

Parker, G.  and Maidment, C.  (2023) In defence of good planning: planning practice, the learned profession and unifying action through reflexive lifelong learning. Town Planning Review (In Press) 
Abstract
The need for ongoing learning and reflection and discussion of why, how and what it is that is being brokered through lifelong learning is presented. The nature of lifelong learning is considered, not only how it is offered and received, but also conceptualisation in a learned profession and what linkages to initial planning education are maintained. We feel this is particularly germane given the increasingly politicised environment that planners operate in and which can shape behaviours and professional culture. Such reflection is required in a time where robust defence of good planning appears ever more necessary.

Sun, W. , Deng, C. X.  and Wan, G. (2020) Housing rents and household consumption: effect, mechanism and inequality. Economic Research Journal. pp. 132-147. 
Abstract
Weakened domestic demand has been one of the Chinese economy’s major structural problems, and ongoing Sino-U.S. trade frictions and the coronavirus outbreak make the issue of paramount importance. Since 2018, the Chinese government has made it a top priority to support domestic demand and therefore stabilize economic growth. It has done so through tax cuts and direct spending. Boosting domestic consumption seems necessary for China to ease the epidemic’s impact in the short term, respond to anti-globalization in the medium term, and promote sustainable economic growth in the long term. This paper investigates the real effect of housing rents on household consumption. Households can theoretically determine their consumption level and housing rents according to user costs, where housing rent is equivalent to user costs. Considering the marked divergence in housing rents and user costs documented in the literature, we propose that housing rents affect household consumption via the investment effect, the income effect, and the substitution effect in the theoretical framework.We use a unique dataset from the China Family Panel Study(CFPS) to examine the heterogeneous effects of housing rents on household consumption from the years 2012 to 2016. We use average housing rents from the survey to measure a specific region’s housing rent level. Our specification not only allows for the crucial features of the housing market and regional disparity, but also for the interaction of households’ housing tenure choices with their consumption patterns. To mitigate the concern of potential endogeneity between household consumption and housing rents, we adopt the proportion of housing demolition in the corresponding region as the instrument in the robustness check.Our paper documents several interesting patterns regarding housing rents and household consumption. First, our findings show positive household consumption responses to declining housing rents. This indicates that declining rent boosts household consumption in the short term. By controlling household level characteristics such as demographic features and financial status, we find that a 10% decrease in housing rents leads to a 1.2%-4.1% increase in non-housing consumption. Second, the overall effect appears to be driven primarily by the investment effect, with an estimated elasticity of 0.15-0.39 for homeowners. The income effect is estimated with an elasticity of 0.18-0.25. Conversely, the substitution effect(estimated elasticity of 0.21-0.41) dominates the consumption pattern of renters. Third, we document a more pronounced marginal effect in the consumption of non-durable goods such as food, education, and utilities, indicating that income effect and substitution effect have similar impacts across different cohorts of households. Fourth, the above results are robust under different econometric specifications and salient with the lower consumption level when the marginal effect is more of a concern. Finally, we analyze the aggregate impacts of rising rents on private consumption from the perspective of consumption inequality. We document evidence of the Matthew effect on household consumption, which is determined by the household endowment and income level. On average, declining housing rent narrows the consumption inequality gap: a 10% decrease in housing rents leads to a significant decrease of 1.13% in the Gini consumption level.This paper makes several contributions. First, the paper examines the impact of housing rents on household consumption, providing the first piece of evidence of how housing rents affect household consumption via the investment effect, the income effect, and the substitution effect. Second, by further discussing the role of housing rents in consumption patterns, our paper contributes to a broader body of literature examining the effects of real estate wealth on private consumption. Third, this paper analyzes the aggregate impacts of rising rents and documents evidence of the Matthew effect on consumption inequality. Finally, our results provide policy guidance for the government regarding how to support domestic demand by regulating and developing the rental market in China.

Wu, Y. , Chen, Y. , Deng, X.  and Hui, E. C.M. (2018) Development of characteristic towns in China. Habitat International, 77. pp. 21-31.
Abstract
China is experiencing rapid progress in industrialization and urbanization. Characteristic towns (Tese Xiaozhen) are one of the important drivers for China's urbanization, industrialization and agricultural modernization in the 21st century. Each of the towns has its own characteristics. At present, however, it is unclear for them about (i) what characteristics should be promoted, (ii) how urban land should be planned and (iii) which industry should be focused on. The public infrastructure and services in towns are usually under-developed, compared to cities. This paper first explores the designation of a brand-new type of new towns in China, i.e. “characteristic towns”, to meet the need of the current urbanization in China. The paper focuses on the principles of “agglomeration” and “livability”, in socioeconomic and cultural contexts. This is exemplified by a case study of Zhejiang's version of characteristic towns. The findings suggest that the success of cultivation of towns is closely associated with agglomeration and livability. In the short term, identifying characteristics is the core element in the development. For the longer term, a comprehensive integration of industrial policy and land use policy is needed to ensure continuous capital investment and revenue generation.

Yi, D. , Deng, X. , Fan, G.-Z. and Ong, S. E. (2018) House price and co-residence with older parents: evidence from China. The Journal of Real Estate Finance and Economics, 57 (3). pp. 502-533. 
Abstract
Numerous Chinese families choose to reside together with their elderly parents due to the considerable impacts of conventional values such as filial duty in Chinese society. However, as house prices rocketed up in major Chinese cities over the past decade, this arrangement is facing a sizeable challenge, therefore also raising new research question about it. This paper attempts to investigate the phenomenon of co-residence of adult children with their elderly parents in China. Using the 2013 data of China Household Finance Survey (CHFS), we document that house price is indeed a significant determinant for the pattern of intergenerational co-residence. Our empirical results can provide interesting insights into the important implication of rising house price for household residential arrangements in this country.