The Financial Economics of Real Estate Markets and Regulation

The contemporary literature on real estate markets suggests that housing policies play a crucial role in achieving economic and financial stability and poorly designed policies can trigger economic and financial crisis. Our research group contributes to this debate by studying how financial and legal innovations affect housing markets, securitisation and the real economy. To answer these research questions, the research group generates a comprehensive European House Price Index for real estate rental and purchase markets in the European Union using web crawling and text mining techniques.

First, we aim to document how financial and legal frameworks affect risk transfer behaviour of financial institutions in housing markets through securitisation. For example, one of our research projects discusses how foreclosure laws and mortgage pricing policies should be designed to mitigate moral hazard of lenders and borrowers in mortgage markets.

The second line of research aims to establish evidence of how financial regulation contributes to securitisation booms which are considered to be at the root of the recent booms and busts cycles in housing markets. Specifically, we shed light on how banking deregulation and financial development increase the probability of a bank operating an originate-to-distribute model in the lead up to the recent financial crisis.

Finally, our research aims to expand the understanding of the role of financial innovation in lender-borrower relationships, and its implications for the real economy.

Research Cluster
Financial Stability and Regulation

Your contact

Professor Huyen Nguyen, PhD
Professor Huyen Nguyen, PhD
Mitglied - Department Financial Markets
Send Message +49 345 7753-756 Personal page

Refereed Publications

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Profit Shifting and Tax‐rate Uncertainty

Manthos D. Delis Iftekhar Hasan Panagiotis I. Karavitis

in: Journal of Business Finance & Accounting, 5-6 2020

Abstract

Using firm‐level data for 1,084 parent firms in 24 countries and for 9,497 subsidiaries in 54 countries, we show that tax‐motivated profit shifting is larger among subsidiaries in countries that have stable corporate tax rates over time. Our findings further suggest that firms move away from transfer pricing and toward intragroup debt shifting that has lower adjustment costs. Our results are robust to several identification methods and respecifications, and they highlight the important role of tax‐rate uncertainty in the profit‐shifting decision while pointing to an adjustment away from more costly transfer pricing and toward debt shifting.

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Working Papers

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To Rent or not to Rent: A Household Finance Perspective on Berlin's Short-term Rental Regulation

Antonios Mavropoulos

in: IWH Discussion Papers, No. 1, 2021

Abstract

With the increasing concerns that accompany the rising trends of house sharing economies, regulators impose new laws to counteract housing supply scarcity. In this paper, I investigate whether the ban on short-term entire house listings activated in Berlin in May 2016 had any adverse effects from a household finance perspective. More specifically, I derive short-term rental income and counter-factually compare it with long-term rental income to find that the ban, by decreasing the supply of short-term housing, accelerated short-term rental income but did not have any direct effect on long-term rental income. Commercial home-owners therefore would find renting on the short-term market to be financially advantageous.

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To Securitise or to Price Credit Default Risk?

Huyen Nguyen Danny McGowan

in: IWH Discussion Papers, No. 10, 2020

Abstract

We evaluate if lenders price or securitise mortgages to mitigate credit risk. Exploiting exogenous variation in regional credit risk created by differences in foreclosure law along US state borders, we find that financial institutions respond to the law in heterogeneous ways. In the agency market where Government Sponsored Enterprises (GSEs) provide implicit loan guarantees, lenders transfer credit risk using securitisation and do not price credit risk into mortgage contracts. In the non-agency market, where there is no such guarantee, lenders increase interest rates as they are unable to shift credit risk to loan purchasers. The results inform the debate about the design of loan guarantees, the common interest rate policy, and show that underpricing regional credit risk leads to an increase in the GSEs‘ debt holdings by $79.5 billion per annum, exposing taxpayers to preventable losses in the housing market.

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