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Cambridge Real Estate Research Centre


CRERC  - Working Papers

The Real Estate Research Centre regularly publishes research and conference papers to this webpage. 

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Housing Wealth Distribution, Inequality, and Residential Satisfaction


This paper investigates the relationship between housing wealth and residential satisfaction.
Using household panel survey data from the UK. We find that individual’s asymmetric
response to changes in housing wealth distribution, i.e., loss aversion experienced by the
worse-off group, could offset the gain from an increase in housing wealth at the aggregate level.
Consequently, housing wealth growth does not necessarily improve residential satisfaction for
the society as a whole if it leads to housing wealth inequality. Given the significant impact of
housing wealth distribution on residential satisfaction and subjective well-being, it is important
to tackle inequality in housing markets.

Helen Bao and Charlotte Chunming Meng

Behavioural Interventions for Micro-mobility Adoption:  Low-hanging Fruits or Hard Nuts to Crack?


This study explores the potential and challenges of applying behavioural interventions to
promote micro-mobility adoption. Our online experiments with New York City residents
showed that nudges and faming improved respondents’ willingness to adopt e-scooters
significantly. Moreover, our experiments spanned over the pre-, during- and post- COVID-19
lockdown period in New York City. Findings from this natural experiment revealed that the
effect of these behavioural interventions varied significantly during the pandemic, likely due
to a heightened level of health consciousness and a new perspective regarding social
interactions. Behavioural tools cannot be taken off-the-shelf and applied as a blanket policy.
Individual and group characteristics have to be assessed to devise the pre-eminent behavioural
interventions for a particular target audience. More experiments across a wide range of
economic, social, cultural, and political settings are needed to guide the application of
behavioural interventions in transportation studies.

Helen Bao and Yi Lim

When the Iron Hand Shakes the Visible Hand: Financing Infrastructure Projects through Local Government Debts in China


This study is a response to the call for further research on infrastructure financing from China
in the 2019 special issue of Urban Studies on “Funding, Financing and Governing Urban
Infrastructures”. We develop a theoretical model to investigate the complex relationship
between local government debt issuing for infrastructure financing, land finance, and demand
from the private sector in China. Using local government financing vehicles’ accounting data,
we find that not only the visible hand of local governments is working creatively to meet
infrastructure development targets handed down by the ‘iron hand’ of the central government,
but also the visible hand is getting more effective by considering activities from the private
sector in their debt issuing decisions. By studying the two financing methods in one unified
framework, our work provides reliable and practical evidence on how infrastructure financing
works in China. The policy implications of our findings are also discussed in light of the newly
announced Dual Circulation economic development strategy in May 2020.

Helen Bao*, Robert Liangqi Wu* and Ziyou Wang

Tradable Parking Permits as a Transportation Demand Management Strategy: A Behavioural Investigation


Tradable parking permit schemes can be an effective transportation demand management
strategy by allocating parking spaces efficiently and encouraging the use of non-single
occupancy modes of transport. We investigate the feasibility and effectiveness of tradable
parking permit schemes in high density cities with parking constraints. We focus on the effect
of four behavioural factors, namely, reference dependence, endowment effect, social nudge,
and environmental consciousness. Online experiments are conducted via Amazon Turk Prime
platform, with participants recruited from eight Chinese cities. Our investigation on reference
dependence and endowment effect suggest that tradable parking permit schemes is feasible and
efficient. Environmental consciousness can improve the schemes’ effectiveness in encouraging
participants to switch to public transport, but social nudge shows no significant effect. Our
study provides much-needed empirical findings about tradable credits for transportation
management on the individual level.

Helen Bao and Joelle Ng

Diversification Potential in Real Estate Portfolios


Real estate, despite its spatial fixity, is subject to considerable cross-border investment
flows. However, it may be surmised that the diversification potential of international real
estate investments dwindles if markets become increasingly interlinked. Building on a unique
dataset of direct real estate markets covering 16 OECD countries over the period 1999−2018, we compare country-level and sector-level diversification potential. We apply a relative Sharpe ratio loss approach and develop a modified version of this measure, relying on theValue-at-Risk, which is robust to non-normality. Using a circle block-bootstrap procedure, robust confidence intervals for both measures are built. This new diversification test providesinvestors and analysts with a valuable tool as it delivers both estimates and robust significance levels. The empirical findings broadly reveal that international diversification strategies outperform sectorial diversification of real estate assets.

Bertrand Candelon, Franz Fuerst and Jean-Baptiste Hasse


Could Loss Aversion Retain on the Market? Evidence from the Hong Kong Property Market


Loss aversion not only affects the list price of properties but can retain on actual transactions. Utilizing the data of over a million commercial and residential property transactions in Hong Kong from 1991 to 2015, we find that sellers facing nominal losses relative to their prior purchase prices attained higher selling prices than their counterparts. We suggest two market factors to account for the extent of the loss aversion effect on the market transaction prices. First, the loss aversion effect is only prominent when comparable transaction information is not readily accessible, such as in the less-transacted commercial property market. Second, our results suggest the relevance of loss aversion to the boom-bust property cycle in both the residential and commercial markets. The effect of loss aversion on transaction prices is relatively weak in the bust period between 1998 and 2003 when the Hong Kong property market lost almost two-thirds of its value, and it enlarges with the market recovering. The power of loss aversion is not attenuated at the aggregate market level but is associated with strong reductions in price declines in the bust period and in the commercial market. These results have implications for understanding the market adjustment of loss aversion in different property sectors and its association with the aggregate market dynamics in a boom-bust property cycle.

Christina Li and Wayne Wan


Machine Learning, Architectural Styles and Property Values


This paper reveals the nuanced nature of demand side preferences for architectural style.

We present evidence that architectural style is an important determinant of housing sales price and that these effects may be sensitive to neighborhood aesthetics and attenuated by new construction. We also introduce a general algorithm that scrapes housing photos and utilize a deep-learning based model to automatically classify homes by their architectural style, explicitly incorporating spatial dependencies in the exteriors of homes. Comparisons between classifications from the machine based model and expert humans illustrate ways to help detect and mitigate potential biases in image based machine learning methods.

Thies Lindenthal, Eric B Johnson


Local Beta: Have Location Risks Been Priced in REIT Returns?


This paper studies the pricing of the risk associated with the location of the assets. The location risk is measured by ‘local beta’, which combines the systematic risk of local property markets and the property allocation strategy of real estate firms. The empirical results confirm a higher equity return for a firm with higher exposure to the most volatile property markets, particularly for REITs which are more geographically concentrated. For REITs with highly diversified assets, location risks are reflected in REIT returns. For those REITs with most concentrated assets, a one standard deviation increase in the local beta will lead to a 4.5% increase in the annual return. Investors can use REITs’ location risk as an information tool to construct a long-short investment portfolio of real estate firms and can achieve a significant non-market performance of 6% per annum.

Bing Zhu, Colin Lizieri


The Total Return and Risk to Residential Real Estate


This paper estimates the total rate of return to residential real estate investments based on 120,658 hand-collected archival observations of prices, rents, taxes and costs for individual houses in Paris (1809–1942) and Amsterdam (1900–1979). The annualized real total return, net of costs and taxes, is 4.2% for Paris and 5.0% for Amsterdam, and entirely comes from rental yields. At the property-level, the yield at purchase is an important determinant of the total holding period return, even for longer holding periods. In the short-term, idiosyncratic risk is the dominant component of total risk, but its importance reduces over time.

Piet Eichholtz, Matthijs Korevaar, Thies Lindenthal and Ronan Tallec


Pricing Efficiency vs. Bounded Rationality:  The Responses Surrounding GICS Real Estate Category Creation


By performing event studies on REITs included in S&P 400, S&P 500, and S&P 600  indices on both the announcement and the implementation dates, we investigate the impact of the reclassification of the real estate stocks in the S&P 500 from the Financials sector to the newly created Real Estate sector under GICS system. We set up four hypotheses to test if the identified reclassification effect is due to improved pricing efficiency or bounded rationality. The event studies confirm the presence of abnormal returns during the announcement of the new sector and the S&P implementation. The reclassification effect is the largest for the large-cap real estate stocks that are included in the S&P 500 index. These abnormal returns are robust to various measures of statistical significance and variation of event windows. The creation of the real estate category in GICS both improve the pricing efficiency of real estate stocks, but also triggered framing effects among investors. The market is under the influence of both the rational and the irrational forces

Helen Bao, Adam Brady and Ziyou Wang


Reference Dependence in the UK Property Market


The study of reference dependence in property markets is of practical importance due to the unusual characteristics of property transactions, such as high information asymmetry caused by many individuals’ lack of experience in property markets. The overall low transaction frequency and general illiquidity of property markets can exacerbate and reinforce irrational behaviours such as reference dependence. The knowledge gained through an empirical investigation in the UK property market can assist in the attenuation of these distortions. We use a UK online panel data provider, Prolific, to conduct an online experiment on the formation and adaptation of reference points among home buyers and sellers in the UK. Over 600 valid responses were collected in January 2019. By analysing the reported ‘willingness to pay’ of buyers and ‘willingness to accept’ of sellers this paper identifies the presence of behavioural biases in the UK property market, and the extent to which they are caused by both historical and recent prices. The influence of aspirations and social comparisons is established in this novel context. The results of the experiment clearly indicate that reference dependence is prevalent in the UK property market, and both aspiration and social comparisons affect reference point dependence significantly. The observed behavioural bias in housing decisions are “predictably irrational”. The findings of this study pave the way for reliable economic modelling of such irrationality and a better understanding of behaviours in the housing market.

Helen Bao and Rufus Saunders


Urban land marketization in China:  a supply side analysis


The land reforms in China that aim to build an efficient land market have led to the emergence of a dual land supply system composed of market-based leasing and administrative allocation.  The use of a market-based leasing approach is deemed to strengthen the land supply efficiency with its superior competitiveness and transparency to administrative allocations. Yet, despite the central mandate requiring urban land to be supplied through public auction and tender in the market track, administrative allocation and negotiated trading remain as the dominant supply approach in China. This has caused concerns over whether the land reforms can achieve the efficiency goal given the limited role of the market instrument. This study attempts to clarify the concerns with the examination of the dynamics of urban land marketization in major Chinese cities and, more importantly, the impact on the efficiency of land supply and new housing supply. By utilizing aggregate prefecture-level residential land supply and new housing supply data during the period 2006-2017 and individual property development data between 2006 and 2015, systematic macro and micro analyses were conducted. The results show that 1) less-developed cities witness significant increases in the level of residential land marketization, while developed cities experience considerable decline, 2) increases in the residential land marketization show a limited role in improving the responsiveness of housing supply to housing price changes at both the aggregate supply and individual development levels, and 3) this limited role is likely to be caused by inefficient residential land supply, which is controlled by the municipal government, regardless of the supply channel. These findings have important implications in understanding the role of government interventions in supporting market-based activities on one hand, while on the other, how successful the land reforms in China are in improving the efficiency of land and new housing supply. 

Christina Li, Helen Bao and Guy Robinson


Policy Uncertainty and Real Estate Development in China


This study investigates urban housing supply in China by focusing on the development strategies of real estate developers. In a dynamic and volatile market, developers face great challenge determining the optimal development time in order to ride the boom-bust cycles. We follow Titman (1985) to model this “option to develop” in a real option framework and examine the effect of policy uncertainty on real estate development. A two-step identification strategy is developed based on the policy implementation gap between the central government and the local government in China. Our empirical evidence shows that the development delay caused by price uncertainty eases off as local government’s reliance on land revenue increases. This effect is stronger for state-owned developers who are better shielded from policy uncertainty than non-state-owned developers. These findings extend our understanding of the impact of government interventions and policy uncertainty on real estate market.

Christina Li, Helen Bao, Enwei Zhu and Hongyu Liu


Tearing down the information barrier:  the price impacts of energy efficiency ratings for buildings in the German rental market


Improving the energy efficiency levels of the housing stock is of particular concern in the private rental market where capital costs and utility cost savings are not shared in equal measure by landlords and tenants. This problem is particularly pronounced in the German housing market with its predominance of rented accommodation over owner occupancy. The present study is the largest to date to investigate the effect of energy efficiency ratings on rental values. Using a semiparametric hedonic model and an empirical sample of nearly 760 thousand observations across 403 local markets in Germany with full hedonic characteristics, we find evidence that energy-efficient rental units are rented at a premium. However, this effect is not confirmed for the largest metropolitan housing markets. In a second step, a survival hazard model is estimated to study the impact of the energy ratings on time-on-market. It is found that energy inefficient dwelling have longer marketing periods and are hence less liquid than their more energy efficient counterparts.

Marcelo Cajias, Franz Fuerst and Sven Bienert


Reference Dependence, Loss Aversion and Residential Property Development Decisions


We analyse land transaction and residential development data from Beijing, China and identify that developers’ evaluation of land transaction exhibits reference dependence and loss aversion.  Developers with prior land transaction losses set higher house prices than those without prior losses. This effect is strongest at the beginning and towards the end of the property sales period.  It is moderated by developers’ ownership structure and listing status. Privately-owned firms experience stronger effects than their state-owned counterparts, whereas unlisted firms are more strongly affected than their listed counterparts. Results have implications on the relationship between the land and the housing markets in China. In a booming land market where land acquisition entails a high price, developers will transfer excess land price to house prices, thereby increasing the latter. The land market plays an integral role in managing housing prices in China.

Helen Bao, Charlotte Chunming Meng and Jung Wu


Machine Learning, Building Vintage and Property Values


This paper makes three contributions: First, it introduces an algorithm that collects pictures of individual buildings from Google Street View. Second, it trains a deep convolutional neural network (CNN) to classify residential buildings into architectural styles, taking into account spatial dependencies of building vintages. Third, it investigates whether architectural styles influence house prices. For re-sales, the architectural style is a significant determinant of transaction prices while no such effect is found for new buildings. This indicates that any premia are for vintage-related quality characteristics and not for a home’s beauty.

Thies Lindenthal and Erik B Johnson


Public Services, Real Estate Taxes and Fees, and Housing Prices in China:  A Study Based on Chinese-style Decentralisation


In this research, we extend the work of Stadelmann and Billon (2012) by incorporating Chinese-style decentralization variables. We do this to explore the characteristics of tax capitalization and the capitalization of public services under the city governances in China. As an indicator of Chinese-style decentralization, the city-level administrative hierarchy leads to city-level differentiation of fiscal resources and public services. We argue that this further causes a huge disparity in housing prices among China’s 35 major cities. Meanwhile, the land transferring fee is a factor driving the increase in urban housing prices.

The main contributions of this research are fourfold. One, we provide a reasonable explanation for the structural intercity housing price differences in China’s 35 major cities. Two, we use the method of principal component analysis (PCA) to calculate the 35 major cities’ public services indexes. Three, we use measures of land-related taxes and land transferring fees to check the effects of tax capitalization. Four, we use the number of city-level government officials at the deputy bureau chief and above levels for the first time as an instrumental variable and an indicator for Chinesestyle
city-level decentralization to help mitigate the endogeneity in the panel data analysis.

Yanfen Huang, Chao Zhang, Helen Bao and Huayi Yu


On the Strategic Timing of Sales by Real Estate Developers:  To Wait or Pre-sell?


In timing property listings, real estate developers can exercise the “option to wait” or “option to presell” to mitigate price uncertainty risk. In this study, we study the effectiveness of both strategies under a unified framework. We test our hypotheses using residential developmentdata from Hong Kong between 1995 and 2015. Empirical evidence shows that when the presale option is unavailable, developers tend to adopt the waiting strategy when facing price uncertainty risk. Conversely, when a presale option is available, developers will accelerate sales when price volatility is high. Moreover, the effectiveness of the presale option depends substantially on government restrictions. Our approach facilitates the identification of the net effect of either tool and provides an opportunity to unify conflicting findings in the literature.

Christina Li, Helen Bao and Prof K W Chau


Investor overconfidence and trading activity in the Asia Pacific REIT markets


Overconfidence is one of the most robust behavioral anomalies in financial markets. By attributing investment gains to their ability, investors become overconfident and trade aggressively in subsequent periods. Evidence from stock markets shows that overconfidence leads to excessive trading and, subsequently, inferior investment performance. However, studies on overconfidence effect are lacking in the real estate sector, which is particularly true for Asia Pacific real estate investment trust (REIT) markets. Thus, this study verifies the overconfidence effect in six Asia Pacific REIT markets, namely, Australia, Hong Kong, Japan, Singapore, South Korea, and Taiwan. The study finds that the overconfidence effect is more conspicuous during market boom periods or in inefficient market conditions. In addition, simulation analysis demonstrates that overconfidence could lead to rather large volumes of excessive trading activities in certain markets. Findings are robust across the alternative measures of control variables. Moreover, the policy implications of the research are also discussed.

Helen Bao and Steven Li


Housing Wealth and Residential Energy Consumption in the UK


Housing wealth effect often manifests as a positive relationship between consumption and perceived housing wealth (e.g., the perceived value of houses). When the perceived value of a property rises, homeowners may feel more comfortable and secure about their wealth, causing them to spend more. This study adopts a behavioural approach to verify if this relationship holds true for residential energy consumption in the UK. While controlling for property characteristics as well as a large number of demographic, socioeconomic and energy-use behaviour variables, we identified a significant relationship between housing wealth and energy consumption. Our models also considered psychological biases in energy consumption behaviours such as the framing effect.

Our findings not only shed light on the behavioural aspects of housing wealth
effect on residential energy consumption, but also demonstrates the possibility
and potential to ‘nudge’ households towards energy conservation. Most importantly, we also provide empirical evidences on the intriguing relations among housing wealth, residential energy consumption, and fuel poverty. We argue that overlooking the presence of fuel poverty risks a superficial interpretation of any identified housing wealth effect on residential energy consumption. The fuel vulnerable group should be analysed separately from the rest of the population due to their different energy consumption patterns. This finding is particularly helpful to design and implement energy consumption policies that can strike a balance between social justice and economic efficiency.

Helen Bao and Steven Li


500 Years of Urban Rents, Housing Quality and Affordability


We study urban housing rents and quality from 1500 to 2017 for Amsterdam, Antwerp, Bruges, Brussels, Ghent, London, and Paris. Based on a dataset of 436,000 rent observations, we relate rent developments to wages and consumer prices. Real rents have developed similarly in the long term, but reflect shorter-run differences in local economic and political conditions. Long-run growth in real rents has been limited. The ratio of wages to market rents was stationary before 1900, but grew considerably after that. Most of the increase in housing expenditure that did occur is attributable to increasing housing quality rather than rising rent.

Piet Eichholtz, Matthijs Korevaar and Thies Lindenthal


Housing affordability:  Is new local supply the key?


This paper seeks to predict the impact of future housing supply on the affordability of residential space in the United Kingdom, using quantitative model-based simulation methods. Our spatially disaggregated analysis focuses on the greater South East region, approximately within 1.5 hours commuting time from Central London. A dynamic spatial panel model is applied to account for observed temporal variations in property prices and housing affordability across districts.  The dynamic structure of this model allows us to assess the scale and extent of knock-on effects of local supply shocks in one district on other districts in the region. These complex spatial effects have been largely ignored in local or regional housing market forecasting models to date.
Applying this model, we are able to demonstrate that local house prices and affordability are not only determined by the underlying supply and demand conditions in the market in question, but also depend crucially on conditions in neighbouring housing markets whose properties can be considered close substitutes within a larger regional housing market. We also show that increasing housing supply in the most critical areas has little impact on (both local and regional) affordability,
even if wages do not change in response to an increase in employment.

Bernard Fingleton, Franz Fuerst and Nikodem Szumilo


Currency Risk Management for Investors in Asia Pacific Non-Listed Real Estate Funds


Currency movements potentially have a major impact on the domestic currency cashflows from international real estate investments and understanding and managing currency risk is therefore an important part of the investment process.

This research explores how investors in Asia Pacific non-listed real estate vehicles approach these issues and uses a simulation analysis to explore the impact of different hedging strategies. The real estate literature highlights how currency volatility can potentially offset the diversification benefits from international real estate portfolios.  The literature highlights that it is appropriate for large multi-asset investors to manage currency at an aggregate level. It also suggests that different hedging strategies might be appropriate for different investors and that 100% hedging may not be appropriate for some investors in some markets.

The survey of Asia Pacific non-listed real estate vehicle investor undertaken as part of
this research provides an indication of current practice in managing currency risk arising from international real estate investment.

Nick Mansley and Zilong Wang



Increased Tail Dependence in Global Public Real Estate Markets


This study examines the tail dependence of returns in international public real
estate markets. By using daily returns of real estate securities in seven countries
from 2000 to 2018, we analyze how the interdependence of international
securitized real estate markets has changed since the Global Financial Crisis. We
divide our sampling period into pre-, during, and post-crisis periods, and estimate
both upper and lower tail dependence coefficients for each sub-period. Our
empirical results confirm that most country pairs have changed from tailindependent
to tail-dependent since 2007. Strong tail dependence persists
throughout during crisis and post-crisis periods. The findings from the post-crisis
sub-sample provide new evidences on increased tail dependence in global real
estate market in recent years. We conclude that international real estate
securities still offer diversification benefits nowadays but to a lesser extent than in
the pre-crisis period. Investing in global real estate securities markets is beneficial
for cross-region, mixed-asset portfolios.

Yang Deng, Helen X H Bao and Pu Gong


Behavioural Analysis of Housing Satisfaction with Relocations: Field Evidence from China


This paper proposed a theoretical framework based on prospect theory to explain the
determinants of housing satisfaction among relocated residents. We test the two most important elements of prospect theory, namely, reference point dependence and loss aversion. For reference point dependence, we investigate the presence of both internal and external reference points; for loss aversion, we test its effect directly by comparing coefficients in loss and gain domains and indirectly by verifying the presence of the endowment effect. Our study area is Xiamen, China, where the recent urbanization frenzy provides a natural experiment setting to reliably test our hypotheses. Our empirical findings provide convincing evidence to support the four hypotheses developed from prospect theory, indicating that prospect theory is a working theory to better understand the motivations and concerns of relocated residents. Policy recommendations are subsequently derived to reduce social conflicts and disharmony caused by urban redevelopment and relocations.

Jinhai Yan and Helen X H Bao


A Behavioral Interpretation of the NAV Discount Puzzle in Listed Real Estate Companies


The NAV discount is a long standing puzzle in the listed real estate context. In this paper we extend the existing literature’s rational and noise trader explanations by exploring the influence of specific irrational behaviors. Based on behavioral biases identified in the stock and real estate markets, we hypothesize the existence of a relationship between lagged NAV growth and the NAV discount. The findings provide initial evidence of trend-chasing behavior between the dual real estate markets. The results have broader implications for the perception of the relationship between public and private real estate markets.

Sally Monson, Helen Bao and Colin Lizieri


The Dynamics of House Prices in Israel and the Effect of the Investor's Fear Gauge


In this paper, we investigate the macroeconomic drivers of house prices in Israel, the OECD country with the highest growth rate in recent years, and test for the divergence of observed prices from underlying fundamentals using cointegration analysis and error correction models for the 1998 to 2013 period. While the recent surge in house prices is partially explained by fundamentals such as population growth, low unemployment, and interest rates along with supply constraints, the results suggest that prices have deviated from fundamental values by approximately 20% from 2009 onwards. Stock market volatility is found to be a key predictor of house prices in the short run, indicating a shift towards increased investment in the housing market when other asset classes, notably the stock market, are perceived as very risky.

Dotan Weiner and Franz Fuerst


Income risk in energy efficient office buildings


This article examines the impact of improving energy efficiency of office buildings on their financial risk. While multiple studies report a sustainability premium little is known about the corresponding risk. This research reviews the financial benefits in the context of their impact on risk. After a theoretical analysis of the topic, it forms two hypotheses which are supported with empirical tests performed on a large panel dataset of US commercial office buildings. Changes in the magnitude of the green premium in rent and changes in rental volatility are used as indicators of financial risk associated with energy certification. The study concludes that acquiring an EnergyStar certificate is related to a structural change in statistical characteristics of rents which
may be related to the level of energy efficiency. The average effect is positive but varies over time.

Nikodem Szumilo and Franz Fuerst


CEO Overconfidence in Real Estate Markets: A Curse or A Blessing?


This paper studies the influence of CEO overconfidence on firms’ financial performance and corporate social responsibility (CSR) in the US real estate investment trust (REIT) market. CEO overconfidence has been shown to have both negative and positive influences on firms. This paper is the first to combine the two sides in a single framework. We find that firms with overconfident CEOs tend to have better CSR performance. In addition, better CSR performance can increase firms’ financial performance, but this positive relationship is undermined by the existence of overconfident CEOs. Our results not only shed light on the two sides of CEO overconfidence in the real estate sector, but also provide a new prospective for research on the CSR–financial performance relationship.

Helen Bao and Steven Li


Land Assembly in Amsterdam, 1832-2015


Inner city redevelopment frequently involves the assembly of small lots into bigger ones.  We analyze joint lot development and the influence of coordination and transaction costs of land assembly on the exercise of the redevelopment option, using Amsterdam micro housing information for 1832, 1860 and 2015. In all, we have a complete set of building structure and household characteristics for dwellings on almost 30,000 lots for each of these years.  We estimate a logit model to predict joint lot redevelopment, based on structural characteristics of lots and dwellings and on social characteristics of their occupants. The results show that both types of characteristics significantly explain land assembly, and the regression coefficients adhere to the theoretical land assembly literature. This paper contributes importantly to our knowledge of the specific land parcel and structural physical characteristics that impact redevelopment. To our knowledge, this is the first paper to study the joint characteristics of the potentially combinable lots, and to document and quantify the role of social characteristics in land assembly.

Thies Lindenthal, Piet Eichholtz and David Geltner


Are Energy Efficiency Ratings ignored in the German housing market? – evidence from a large-sample hedonic study


Improving the energy efficiency levels of the housing stock is of particular concern in the private rental market where capital costs and utility cost savings are not shared in equal measure by landlords and tenants. This problem is particularly pronounced in Germany where rental properties make up the majority of the housing stock. The present study is the largest to date to investigate the effect of energy efficiency ratings on rental values. Using a semiparametric hedonic model and an empirical sample of nearly 500k observations across 412 markets in Germany with full hedonic characteristics, we find strong evidence that energy-efficient rental units are rented at a significant premium. However, this effect is not confirmed for the largest metropolitan housing markets. In a second step, a survival hazard model is estimated to study the impact of the ratings on time-on-market. It is found that energy-efficient rental properties tend to lease up more quickly than their non-efficient peers.

Marcelo Cajias, Franz Fuerst and Sven Bienert


Personality traits and energy efficiency in the UK residential market


The limitations of simple payback and investment profitability models for energy efficiency investments are well established in the literature. This paper investigates whether personality traits play a significant role in the decision-making process of investing in energy efficiency in the residential sector. Using the Understanding

Society UK survey data, we apply structural equation modelling to examine if personality traits may explain why certain individuals choose to invest in energy efficiency measures while others do not, even under almost identical financial conditions. The results show that the link between personality traits and energy efficiency measures are primarily mediated trough risk preferences and/or attitudes toward the environment. Similar mediation effects are found for pro-environmental habits. However, an important difference is that households with higher incomes have a higher propensity to invest in energy efficiency while the opposite is the case for other pro-environmental behaviours and habits. The findings of this analysis underline the need for differentiated and targeted products and policies in the market for residential energy efficiency

Ante Busic-Sontic,  Franz Fuerst, Natalia Czap


Beauty in the Eye of the Home-Owner:  Aesthetic Zoning and Residential Property Values


This paper provides empirical evidence for one of the core justifications for architectural zoning: Shape homogeneity influences the value of a residential building. Drawing on large-scale shape and transaction data, this study first develops a data-driven measure of architectural similarity, condensing three dimensional shapes to univariate shape distributions. The algorithm-based similarity estimates are good predictors of human perceptions of shape similarity and are linked to property attributes and transaction prices. For the city of Rotterdam, a price premium of approximately 4 percent for row houses in very homogeneous ensembles is estimated.

Thies Lindenthal


Conceptualising the role of personality traits in making investment decisions: The case of residential energy efficiency


This paper explores whether differences in individual personality traits may explain why some households decide to undertake an energy efficiency upgrade of their property while others opt to do nothing, even in identical financial circumstances. By using the taxonomy of the Big Five personality traits, we develop a conceptual framework for how personality traits might transmit to household economic decision making in the realm of domestic energy efficiency retrofits. This model can be tested in future empirical analyses which would otherwise be prone to confounding primary (direct) and secondary (mediated) factors impacting upon the retrofit decision. Implications for environmental policy and future research are derived. The novel conception could contribute to shed light on the still highly distinctive energy-efficiency gap in residential markets.

Ante Busic-Sontic and Franz Fuerst


Information Supply and Demand in Securitized Real Estate Markets


This study introduces a novel approach to explaining the short-term market movements of Real Estate Investment Trusts (REITs) utilizing Big Data Analytics. While literature provides several explanations for the variation of industry returns, there has been little empirical evidence of whether these patterns are attributable to the flow of information. We extract news sentiment as a proxy for information supply based on agency news and additionally investigate web search queries as an indicator for information demand. Analyzing REIT markets in the UK and US indicates a consistent pattern across both countries. While we observe a strong positive effect of news sentiment on REIT returns and stock market volatility, the effect of online search behavior is only marginal. Further, we exhibit that particularly finance-specific news sentiment measures significantly contribute to explaining NAV spreads. Hence, the application of different metrics for information supply and demand for the UK and the US yields diverse impacts on developments in securitized real estate markets. Keywords: Behavioral Finance, Big Data Analytics, Net Asset Value, News Sentiment, Online Search Behavior

Jan-Otto Jandl and Franz Fuerst


Monocentric Cyberspace:  The Primary Market for Internet Domain Names


Cyberspace is no different from traditional cities, at least in economic terms. Urban economics governs the creation of new space on the Internet and explains location choices and price gradients in virtual space. This study explores registration dynamics in the largest primary market for virtual space: Internet domain names. After developing a framework for domain registrations, it empirically tests whether domain registrations are constrained by the depletion of unregistered high quality domain names. Estimations based on registrations of COM domain names suggest that the number of domains expands substantially slower than the growth in overall demand for domain space. Supplying alternative domain extensions can relax the shortage in domains in the short term.

Thies Lindenthal


Green Clientele Effects in the Housing Market


This study investigates how the energy efficiency ratings mandated by the European Union affect house prices. Using a sample of several thousand apartment transactions from Helsinki, Finland, we test whether higher ratings were significantly associated with higher prices. In addition to a large number of property and neighbourhood characteristics, this dataset contains information on building-level energy usage which allows us to distinguish between the 'pure' price effects of energy consumption and the value of more intangible factors associated with the energy label. The hedonic model yields a statistically significant 3.3% price premium for apartments in the top three energy-efficiency categories and 1.5% when a set of detailed neighbourhood characteristics are considered. When maintenance costs containing energy usage costs are added, a robust and significant price premium of 1.3% persists whereas no differentiation is found for the medium and lower rating categories. These findings may be indicative of segmented demand for energy-efficient buildings where price premia will only be observable for the top tier of energy ratings due to a 'green clientele effect'. However, a high energy rating did not appear to speed up the sales process in the analysed market.

Franz Fuerst, Elias Oikarinen and Oskari Harjunen


A commercial real estate index for an emerging market:  The case of Beijing


Despite their large size and relevance to the overall economy, commercial real estate markets have largely evaded the push for a Big Data revolution. Infrequent transactions and non-disclosure of deal and pricing information are the most commonly named data problems which are particularly pronounced in emerging markets where market monitoring and transaction recording systems are not well established and the institutional market segment may be thin.  Beijing is a good example for this situation. A reliable quarterly office rental price index is non-existent.  This paper presents a viable approach for estimating a robust and reliable quarterly transaction-based price index based on primary data from the Beijing office market, using a two-stage frequency conversion approach.   This new index complements existing valuation-based indices by providing more accurate and timely measurements of market turning points.

Franz Fuerst, Xuefeng Liu and Prof Colin Lizieri


Energy Performance Ratings and House Prices in Wales:  An Empirical Study


This paper investigates the price effect of EPC ratings on the residential dwelling prices in Wales.  It examines the capitalisation of energy efficiency ratings into house prices using two approaches.  The first adopts a cross-sectional framework to investigate the effect of EPC band (and EPC rating) on a large sample of dwelling transactions.  The second approach is based on a repeat-sales methodology to examine the impact of EPC band and rating on house price appreciation.  The results show that, controlling for other price influencing dwelling characteristics including age, EPC band does affect house prices.  This observed influence of EPC on price may not be a result of energy performance alone; the effect may be due to non-energy related benefits associated with certain types, specifications and ages of dwellings or there may be unobserved quality differences unrelated to energy performance such as better quality fittings and materials. An analysis of the private rental segment reveals that, in contrast to the general market, low-EPC rated properties were not traded at a significant discount. This suggests different implicit prices of potential energy savings for landlords and owner-occupiers.

Franz Fuerst, Prof Pat McAllister, Dr Anumpam Nanda and Prof Pete Wyatt


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