טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
Ph.D Thesis
Ph.D StudentGolan Roni
SubjectThree Essays on Real Estate Prices in an Imperfect
Market
DepartmentDepartment of Architecture and Town Planning
Supervisor Dr. Danny Ben-Shahar
Full Thesis text - in Hebrew Full thesis text - Hebrew Version


Abstract

This study examines aspects of imperfect competition in the housing market based on the entire population of housing transactions in Israel from 1998 to 2013. First, we examine whether the currency substitution that took place in the Israeli real estate market in recent decades carried a real price effect. Next, we examine whether the disclosure of all real estate transaction information by the Israeli Tax Authority in 2010 carried an effect on economic efficiency and equity. Finally, we examine the reliability of the reported housing prices and propose a methodology for identifying transactions in which the reported price is anomalous.

The currency substitution experienced by the Israeli real estate market in the past decades serves as a unique case for studying the effect of the anchoring heuristic on micro- and macro-level prices. In the first essay we hypothesize that given the dual-currency price that emerges during the currency substitution process and the fluctuations in the exchange rate between the old and new currency, players utilize current and past exchange rates to affect the closing price in their favor. Results of micro- and macro-level estimations indicate that exchange rate fluctuations associate with an upward ratchet price effect. Furthermore, we find that the ratchet price mechanism disappears once the currency substitution is completed. These findings provide new evidence of the effect of anchoring on a market whose transactions involve substantial, long-term economic consequences.

The second essay employs data from a natural experiment to assess the effect of improved price information shock on subsequent real estate transaction price dispersion. While transaction data in the Israeli real estate market had never been open to the public, in 2010 an Israeli court ordered the Israel Tax Authority to post all real estate transaction data on its website. We employ all housing transactions in the period prior and subsequent to this event to assess its effect on housing price dispersion. Results provide strong evidence of improved market efficiency as indicated by a significant decrease in the dispersion of quality-adjusted prices. We further find evidence that the information shock effect on price dispersion varies with households’ characteristics in the market. Our findings support the market transparency argument for promoting economic efficiency and equity.

In the final essay, we focus on price manipulation in housing transactions. The imperfections of the housing market, and accompanied quality-adjusted price dispersion, provide a possibility for misreporting transaction prices. The significant sums involved in housing transactions can intensify the motivation to misreport the price for tax purposes. Nevertheless, the literature regarding price manipulation in housing transactions is scarce. We develop an econometric method that reveals anomalous reported prices in repeated-sales data. Using Benford's law, we find indications for the prevalence of price manipulation in the market. We further find a positive correlation between prices suspected of misreporting and the employed tax policy. Finally, we find common characteristic for assets that are subject to misreporting.