We’ve blogged before about the very common roommate/rent dilemma — that is, how to fairly split rent among roommates given that different rooms have different features. A reader named Michael Jancsy writes in with an auction solution and a request for feedback:
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I recently designed an auction website [called “The Rent Is Too Damn Fair”] to help friends split apartments … The auction works by allowing each roommate to bid on each room in an apartment, and then identifies the permutation of roommates to rooms with the largest consumer surplus (sum of all bids minus rent paid to landlord) to decide who should live in what room. Each person’s rent is then calculated by dividing the surplus evenly over the occupants, so that the difference between a person’s bid and the rent paid is the same for each person.
A Bloomberg article by Virginia Postrel explores a discouraging trend in income inequality. For decades, incomes across states in the U.S. converged — i.e. poor states caught up to rich ones — just as Robert Solow‘s growth theory predicted:
Poor places are short on the capital that would make local labor more productive. Investors move capital to those poor places, hoping to capture some of the increased productivity as higher returns. Productivity gradually equalizes across the country, and wages follow. When capital can move freely, the poorer a place is to start with, the faster it grows.
That steady convergence, however, has stopped. One possible explanation? High housing prices in rich cities, caused by government regulation: Read More »
An NBER working paper (full PDF here) by Meghan R. Busse, Devin G. Pope, Jaren C. Pope, and Jorge Silva-Risso explores the role of projection bias when choosing a new car or house. It turns out that weather conditions are a huge factor when consumers are debating big purchases like houses or cars. The abstract:
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Projection bias is the tendency to overpredict the degree to which one’s future tastes will resemble one’s current tastes. We test for evidence of projection bias in two of the largest and most important consumer markets – the car and housing markets. Using data for more than forty million vehicle transactions and four million housing purchases, we explore the impact of the weather on purchasing decisions. We find that the choice to purchase a convertible, a 4-wheel drive, or a vehicle that is black in color is highly dependent on the weather at the time of purchase in a way that is inconsistent with classical utility theory. Similarly, we find that the hedonic value that a swimming pool and that central air add to a house is higher when the house goes under contract in the summertime compared to the wintertime.
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The most fundamental fact about rental housing in the United States is that rental units are overwhelmingly in multifamily structures. This fact surely reflects the agency problems associated with renting single-family dwellings, and it should influence all discussions of rental housing policy. Policies that encourage homeowning are implicitly encouraging people to move away from higher density living; policies that discourage renting are implicitly discouraging multifamily buildings.
Here’s a splendid diversion if you’re a data nerd, a history buff, or even just like good detective work: Tell the story of the family that lived in your house in 1940.
A bit more background. If you are in the United States, you probably remember participating in the Decennial Census in 2010. These forms are kept confidential for 72 years—roughly an average American’s life span. But this same rule means that today (actually, a couple of days ago), the 1940 Census results became public information. The good folks at the National Archives have scanned all of these census forms, and put them all online. With a bit of work, you should be able to find your house—or if you are in a newer neighborhood, perhaps a neighboring house. Read More »
Republican presidential candidate Rick Santorum made headlines last week when he suggested that high gas prices made mortgages unaffordable, causing the recent housing bubble to burst and sending the economy into recession. It may sound far-fetched, but it is precisely the theory that I and a pair of coauthors presented in a working paper released five days before Santorum’s remarks.
We are actually a bit more nuanced, arguing that unexpectedly high gas prices triggered the collapse of the housing market — igniting a fire fueled by easy credit, lax lending practices, and speculation. It is a provocative claim and one with broad implications, but it is also a claim supported by economic theory and empirical evidence.
The federal government’s Financial Crisis Inquiry Commission asserted in its 2010 report that “it was the collapse of the housing bubble . . .that was the spark that ignited a string of events that led to a full-blown crisis in the fall of 2008.” And a broad, if not unanimous, consensus among economists suggests that the ongoing economic malaise was induced by a financial crisis caused by the housing crisis. Relatively less well-understood is what caused the housing crisis in the first place. Read More »
Introducing “AI: Adventures in Ideas,” a New Blog Series from Sudhir Venkatesh. Episode 1: Going Solo
This is the first installment of a new Freakonomics.com feature from Sudhir Venkatesh. Each AI: Adventures in Ideas post will showcase new research, writing, or ideas.
A new book is garnering significant attention. In Going Solo, Eric Klinenberg, a sociologist at NYU, looks at a growing trend in contemporary adulthood: living alone. How we live, Klinenberg argues, is shifting, and it could be one of the most important developments of the last half-century. Read More »
More evidence of the relationship between the housing market and the overall economy:
Construction makes up less than 5 percent of employment but accounts for more than 40 percent of the large swings in the job-filling rate during and after the Great Recession.