Hedonic price analysis

"Hedonic" means having to do with pleasure.

A set of characteristics.

Each has an implicit price.

The price of a house = sum of the implicit prices.

The hedonic price index calculates the implicit prices of characteristics in several years.

In economics, it refers to prices corresponding to the utility derived from goods.

Subsidized Development

Typically government's economic development has a job inducement cost of $6000-$11000 per year.

The knowledge problem: which industries firms to target.

Economic changes can also alter the benefits.

The political problem: officials can be corrupted by favors.

Typical local government subsidy incentives have had little net economic effect.

Many cities subsidize stadiums for professional sports.

Brings prestige. But costs outweigh benefits.

Incentives to individual firms substitute for a more comprehensive reform of local taxes.

If taxes need to be reduced in order to attract firms, they were too high or the wrong type.

More effective: general, permanent policy of not punishing enterprise.

Government penalizes enterprise and then creates ad hoc subsidies.

Reduces particular taxes, and produces little net benefit.

Government should restructure taxation instead of offering bonuses.

Housing Problems and Policies.

Subsidies to housing:

1992, $20.5 billion in housing aid.

$50 billion in mortgage deductions.

$13 billion in property tax deductions.

$1.2 billion in accelerated depreciation.

Billions in postponed capital gains.

Billions in rent and land value from public works.

Racial discrimination

Redlining. Why red?

1933, Roosevelt created the Home Owners Loan Corporation

to prevent foreclosures.

Created a rating system for neighborhoods: ABCD.

Each grade was assigned a color. D, the lowest grade, was red.

Ethnically mixed and Black neighborhoods were zoned red.

1934, became the FHA Federal Housing Administration.

The ABCD guidelines were continued by the FHA.

FHA also encouraged racial covenants.

The FHA contributed to racial discrimination and segregation into the 1960s.

FHA also helped promote a secondary market for mortgages thru the

Federal National Mortgage Association - Fannie Mae.

Federal construction of housing projects 1940s-70s.

Projects a failure. Ceased.

The 2.6 million Americans living in government (public) housing

are more than twice as likely to become victims of gun violence as the rest of the population,

according to a Department of Housing and Urban Development report.

An estimated 10 out of every 1,000 residents of government housing

are victimized annually by violent gun crimes, not including homicides.

This is more than twice the rate of gun violence for the nation as a whole -- 4 out of every 1,000 people.

In 66 of the nation's 100 largest housing authorities,

there were 360 homicides in 1998,

and a larger group of more than 550 housing authorities

had an estimated 296 gun-related homicides in the first six months of 1999 alone.

Public housing authorities around the country have spent more than $4 billion in HUD funds

on crime reduction and prevention since 1990 to deal with gun violence and other crimes.

There is a strong correlation between income and violent crime, notes the HUD report.

The average household income of public housing residents is about $9,500 annually.

Since Housing Act of 1974, subsidies rather than direct housing.

Section 8 program: housing allowances.

Difference between market rental and 25% of income.

For income less than 80% of the median in region.

Rent control - a poor way to redistribute income.

Creates shortage of housing.

Black markets. Moving to substitutes.

Units converted to owner-occupied, condos, abandoned.

Transportation

Provision increases land value.

Commuting accounts for 1/4 of personal trips.

Parking is an additional cost of using cars.

An office worker uses 250 sq feet; his car 400.

Parking garage: $5000 per space. Return of $500 feasible.

Companies typically provide free space.

Parking sticker with fixed cost, zero MC.

Optimal commute is 1.1 miles, actual 8.7 miles.

50 to 90 percent of commuting is waste.

High fixed cost of mass transit.

Payment from revenues not an arbitrary subsidy but an economical means of payment.

Is a hotel elevator subsidized?

The "free" service is paid for by the hotel rental.

It's part of the package.

Using sales taxes raises general production above MC.

US federal government creates perverse incentives with grants for buying new equipment

but not for maintenance.

It leads to under-investment in maintenance.