- 02 Feb 2012
- Op-Ed
Once a Castle, Home is Now a Debtors’ Prison
Forget the notion of the home as "castle." Twenty-two percent of Americans owe more on their mortgages than the value of their homes. Nicolas P. Retsinas offers ideas for how these "debtors' prisons" can be turned into productive housing. Closed for comment; 0 Comments.
- 19 Oct 2011
- Research & Ideas
Designing Cities for a Sustainable Future
The city of the past is likely not the city of the future—climate change is bringing an end to the traditional model. Harvard Business School faculty are thinking along with government leaders and business practitioners about how to create sustainable places to live and work. From HBS Alumni Bulletin. Open for comment; 0 Comments.
- 14 Mar 2011
- Research & Ideas
Keeping Credit Flowing to Consumers in Need
Regulators and policymakers are debating the best ways to revamp our damaged system of consumer and housing finance. The problem: turning the regulatory spigot too tightly could shut off the flow of needed credit to millions of lower-income Americans. A discussion with professor Nicolas P. Retsinas. Key concepts include: The economy will continue to depend on large numbers of low-wage workers. If lenders tighten credit too stringently, millions of Americans will be barred from borrowing. The challenge is to recalibrate the country's access to credit so that more responsibility for making good loans lies with lenders, and so that the burden is not almost entirely on borrowers. Open for comment; 0 Comments.
- 15 Mar 2010
- HBS Case
Developing Asia’s Largest Slum
In a recent case study, HBS assistant professor Lakshmi Iyer and lecturer John Macomber examine ongoing efforts to forge a public-private mixed development in Dharavi—featured in the film Slumdog Millionaire. But there is a reason this project has languished for years. From the HBS Alumni Bulletin. Closed for comment; 0 Comments.
- 01 Oct 2009
- Working Paper Summaries
Systemic Risk and the Refinancing Ratchet Effect
During periods of rising house prices, falling interest rates, and increasingly competitive and efficient refinancing markets, cash-out refinancing is like a ratchet, incrementally increasing homeowner debt as real-estate values appreciate without the ability to symmetrically decrease debt by increments as real-estate values decline. This paper suggests that systemic risk in the housing and mortgage markets can arise quite naturally from the confluence of these three apparently salutary economic trends. Using a numerical simulation of the U.S. mortgage market, the researchers show that the ratchet effect is capable of generating the magnitude of losses suffered by mortgage lenders during the financial crisis of 2007-2008. These observations have important implications for risk management practices and regulatory reform. Key concepts include: Consider the hypothetical scenario in which all homeowners decide to refinance and extract cash from any accumulated house equity so that their loan-to-value ratio is kept the same as the one for a new purchaser of that house. Suppose that the refinancing market is so competitive, i.e., refinancing costs are so low and capital is so plentiful, that homeowners can implement this refinancing each month. In this extreme case, during periods of rising home prices and falling interest rates, cash-out refinancing has the same risk effect "as if" all houses had been purchased and their mortgages originated at the peak of the housing market, thereby creating a large systemic risk exposure. Then, when home prices fall, the refinancing ratchet "locks,'' causing a systemic event with widespread correlated defaults and large losses for mortgage lenders. While excessive risk-taking, overly aggressive lending practices, pro-cyclical regulations, and political pressures surely contributed to the recent problems in the U.S. housing market, the simulations show that even if all homeowners, lenders, investors, insurers, rating agencies, regulators, and policymakers behaved rationally, ethically, and with the purest of motives, financial crises can still occur. The fact that the refinancing ratchet effect arises only when three market conditions are simultaneously satisfied demonstrates that the current financial crisis is subtle, and may not be attributable to a single cause. There may be no easy legislative or regulatory solutions: Lower interest rates, higher home prices, and easier access to mortgage loans have appeared separately in various political platforms and government policy objectives over the years. Their role in fostering economic growth makes it virtually impossible to address the refinancing ratchet effect within the current regulatory framework. We need an independent organization devoted solely to the study, measurement, and public notification of systemic risk, not unlike the role that the National Transportation Safety Board plays with respect to airplane crashes, train wrecks, and highway accidents. The subtle and multifaceted nature of the refinancing ratchet effect is just one example of the much broader challenge of defining, measuring, and managing systemic risk in the financial system. Closed for comment; 0 Comments.
- 28 Jul 2009
- Research Event
Business Summit: Real Estate
Experts discuss the global real estate crisis, the future of securitization, and predictions for the future of the U.S. real estate market. Closed for comment; 0 Comments.
- 05 Jun 2009
- What Do You Think?
What Does Slower Economic Growth Really Mean?
Respondents to this month's column by HBS professor Jim Heskett came close to general agreement on the proposition that economic growth is not measured properly by GDP, calling for new indicators. Jim sums up. (Online forum now closed. Next forum begins July 6.) Closed for comment; 0 Comments.
- 04 Mar 2009
- Op-Ed
Credit is Not the Bogey
"As we attempt to jump-start the economy of 2009, we should recognize both the risks and the advantages inherent in a robust credit industry," write HBS lecturer Nicolas P. Retsinas and Eric S. Belsky. The director and executive director, respectively, of Harvard University's Joint Center for Housing Studies, they offer a prescription for making credit neither too easy nor too hard to get. Key concepts include: It is time to recalibrate the country's access to credit. Tight credit threatens to shut the safety valve of the low-wage sector of the economy. At the same time, open lines of credit should no longer be available to students with no income, just as mortgages should not be extended to buyers who cannot afford the payments. Closed for comment; 0 Comments.
- 17 Oct 2008
- Working Paper Summaries
Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry
The required adoption of International Financial Reporting Standards (IFRS) in the European Union, effective January 1, 2005, resulted in a number of significant changes in how firms report their financial results. Mandatory IFRS adoption has been criticized for both the flexibility afforded under the standards and the encroachment of the fair value paradigm. Specifically, common accounting standards alone may not be sufficient to provide the benefits of common accounting practices. This paper examines the causes and consequences of different forms of fair value disclosures for tangible long-lived assets. Insights may assist standard setters and users in understanding the factors influencing firms' current and future accounting choices, and may also interest U.S. standard setters and managers of the almost 250 publicly traded U.S. real estate firms. Key concepts include: Investors believe that investment property fair values are reliable enough to warrant a significantly lower cost of capital for those firms providing them. The demand for fair value information (reflected in a firm's ownership structure) and the firm's commitment to reporting transparency is associated with the decision to provide fair values. Critically, adoption of this fair value standard under IFRS, in and of itself, is insufficient to fully overcome previous perceived reporting differences across these firms. This is consistent with investors perceiving that property firms across EU countries vary in how they implement this standard. Closed for comment; 0 Comments.
- 29 May 2008
- Research & Ideas
Global Change in the Built Environment
The globalization of the real estate business was the theme of a recent Harvard Business School Centennial colloquium organized by professor Arthur Segel. He provides a summary of the three-day event. Closed for comment; 0 Comments.
- 23 Apr 2008
- Op-Ed
The Gap in the U.S. Treasury Recommendations
U.S. Treasury recommendations for strengthening the regulation of the financial system are a good start but fall short, says Harvard Business School professor emeritus Dwight B. Crane. Here's his suggestion for bringing regulation into the 21st century. Key concepts include: The Treasury proposal recognizes that fundamental change in the regulatory structure is required for managing risk in the financial system. The difficulty with the approach is that the risk in the financial system will not disappear—it will simply move to the non-prudentially regulated firms. The United States should include all financial service firms under the regulatory authority of the new prudential regulator. Closed for comment; 0 Comments.
- 27 Feb 2008
- Research & Ideas
Podcast: Revisiting Rental Housing
The subprime loan debacle, which has caused thousands of families to lose their homes, has cast light on another housing crisis in the U.S.: the lack of affordable rentals. In this podcast Harvard Business School professor Nicholas Retsinas discusses how this situation came to be, and his new book, Revisiting Rental Housing. Closed for comment; 0 Comments.
- 23 Jan 2008
- Op-Ed
A House Divided: Investment or Shelter?
For decades Americans viewed their homes as a safe harbor, a place to put down roots. But the last decade saw the rise of housing as an investment opportunity. What comes next? asks Harvard Business School professor Nicolas P. Retsinas, director of Harvard's Joint Center for Housing Studies. Closed for comment; 0 Comments.
- 12 Sep 2007
- Op-Ed
Building Sandcastles: The Subprime Adventure
The early days of the subprime industry seemed to fulfill a market need—and millions of renters became homeowners as a result. But rapidly escalating home prices masked cracks in the subprime foundation. HBS professor Nicolas P. Retsinas, who is also director of Harvard University's Joint Center for Housing Studies, lays out what went wrong and why. Closed for comment; 0 Comments.
- 12 Mar 2007
- Research & Ideas
The New Real Estate
Real estate continues to defy revert-to-the-mean gravity to deliver handsome returns to investors. Professor Arthur I. Segel looks at the latest developments in the field and also considers several warning clouds that could darken the picture. Closed for comment; 0 Comments.
- 27 Feb 2006
- Research & Ideas
When Rights of First Refusal Are a Bad Deal
Contracts that include a right of first refusal usually benefit the holder of that right. But not always. New research by professor Alvin E. Roth and colleague Brit Grosskopf explains when it's wise to say no. Closed for comment; 0 Comments.
- 09 Jan 2006
- Research & Ideas
Rebuilding Commercial Real Estate
The commercial real estate business is awash with money and opportunity. Is this the calm before the bubble pops? Closed for comment; 0 Comments.
- 30 Aug 2004
- Research & Ideas
Real Estate: The Most Imperfect Asset
Real estate is the largest asset class in the world—and also the most imperfect, says Harvard Business School professor Arthur Segel. He discusses trends toward institutionalization, environmentalism, and globalization. Closed for comment; 0 Comments.
- 17 Dec 2001
- Research & Ideas
Stop Talking About the Weather and Do Something: Three Ways to Finance Sustainable Cities
How do we ensure that our cities are resilient in the face of inevitable future weather events like Hurricane Sandy? John Macomber offers three ways that the private sector can take action. Open for comment; 0 Comments.