Jiajun Lu

Ph.D. Candidate – Department of Economics

Research Statement

I am an urban and regional economist, with specializations in real estate economics and environmental economics. Using various econometric methods, especially non-market valuation techniques, I have conducted research spanning a wide range of topics. These studies can be broadly categorized into three strands: household residential location choice, hedonic pricing analysis in real estate markets, housing demand and policy evaluation.

Research Statement

Job Market Paper

"General Equilibrium Effects of an Urban Housing Supply Expansion: The Role of Residential Sorting" (Job Market Paper)

To fix the housing affordability crisis, the State of California is considering several legislative acts whose purpose is to drive down high housing prices in metropolitan areas by building new housing units. This paper examines the economic consequences of expanding housing supply in productive urban cities and analyzes how residential sorting plays a role in forming a new market equilibrium. Using the newly released 2013-2017 American Community Survey data, I construct an economic model system that includes the models characterizing household residential location choices and their simultaneous spatial interactions with local labor markets, housing markets, and urban amenities across geographical areas in California. I find that, in an open economy with agglomeration effects, a large-scale expansion in urban housing supply accelerates substantial in-migration by high-income, well-educated, dual-worker households. Lower-income and less-educated households move out over time. The positive residential sorting largely undoes what the housing legislation aims to achieve and reduces urban amenities in productive cities. Moreover, in-migrants gain welfare at the expense of urban natives and out-migrants from a housing supply expansion, while the entire population in California can benefit through numerous household relocations.

Working Papers

"Household Residential Location Choice in Retirement: The Role of Climate Amenities"

(Accepted at Regional Science and Urban Economics)

The paper examines the relationship between climate amenities and locational choices in retirement. Using data from 2017 release of the American Community Survey, I construct a household residential location choice model and value climate amenities from the trade-offs among housing cost, climate amenities, and other locational attributes in a metropolitan statistical area (MSA). On average, a retired household is willing to pay $1,209 for a 1-degree drop in average summer temperature, $1,114 for a 1-degree increase in average winter temperature, and $486 for a 1-degree decrease in temperature variability. The values of climate amenities vary with household demographic characteristics, and older households with a higher retirement income and disability have a higher marginal willingness to pay for a favorable climate. Moreover, among the retired population, there exists a positive preference-based sorting across MSAs, where those favoring the preferred temperatures more than the average live in places with a more friendly climate. Using the estimated preference parameters, I compute the values of projected climate amenities and find that retired households would be willing to pay nearly 3.3% of their annual income to avoid a standard future projected climate scenario. Simulation results suggest that over 2% of retired households would relocate in response to this level of climate change, resulting in an overall northbound shift in the retired population.

"Spatial Effects of Air Pollution on Housing Market: Evidence from South Korea"

(with Youngju Lee, Revise and Resubmit at Journal of Real Estate Research)

This paper examines the spatial relationship between the ambient air pollution level of an apartment and its property value in the housing market of South Korea. Using detailed transaction data for 2015-2018, we construct the air pollution index and estimate a two-stage spatial Durbin model that controls for both direct and spillover effects. We find that, holding other factors equal, a 1% increase in the air pollution level can, on average, reduce the value of a local real property by 0.33% ($906). Spatially heterogeneous effects of air pollution on housing prices are investigated, and air pollution is found to have a more significant direct impact on the urban housing market than in rural areas. Moreover, rising air pollution levels in urban centers can raise housing prices in suburban and rural areas, suggesting a strong spillover effect of air pollution and potential migration towards better air quality. The findings in this paper have profound implications for analyzing the spatial impacts of air pollution on housing prices and urban development.

"Selling the Modern Residence: A Tale of Zestimates and Open Houses" (with Richard Carson)

Traditionally, a real estate agent sets a list price for a home and shows it to prospective buyers, with the actual sales price observed at the end of the process. With online websites that aggregate information on what homes are available to buyers, realtors now have to decide whether to hold an open house to draw in buyers when the house first goes on the market and have the Zestimate, Zillow's highly visible estimate of a home's value, when they set the list price. We explore the relationship between Zestimate, list price, the decision to hold an open house, realized sales price, and time on the market, using data of over 50,000 single-family house transactions taken from Zillow. Our empirical results suggest that Zestimates play an important and complex role in driving the sales process and that holding an early open house substantially increases the sales price and decreases time on the market. Other aspects of housing markets ranging from the influence of realtor experience to weather realizations on open house days are also examined.

"The 30% of Income Rule of Thumb for Housing Expenses: A Utility-Theoretic Replacement" (with Richard Carson)

The 30% of income rule for housing expenses is often used as a threshold indicator for financial distress as well as for mortgage and rental decisions. The core problem with this indicator is that it is an ad-hoc rule of thumb based on an old empirical relationship. Conceptually, the problem stems from using a fixed percentage of income even though both housing costs and effective wage rates are highly variable and positively correlated across locations. In contrast, non-housing costs exhibit considerably less spatial variation. We propose a theoretically consistent replacement for the 30% rule that reflects this reality. Our new measure is implemented for household types, defined by demographic composition, using the recently released data from the 2013-2017 American Community Survey and a commonly used source of information on non-housing cost differentials across counties. This measure paints a considerably different picture of the housing affordability crisis across the United States than the 30% rule does.

"The Impact of Change in Perceptions of Air Pollution on the Housing Market in South Korea" (with Youngju Lee)

We analyze how perceptional changes in air pollution impact housing markets in South Korea. Due to a revised air pollution standard, air pollution labeling indicates a worse air condition than before, guiding people to perceive more of the seriousness of air pollution. Holding actual air pollution levels equal, we find that the total changes of perception lower the average housing price by nearly 2.5% and an additional day with changed labeling decreases the property value by 0.3%. This negative shock varies with diverse housing prices and is found to be heterogeneous across geographical areas. An additional day of label change affects more in non-metro areas, while the whole policy impact is slightly more significant in metropolitan areas.

Publications

"The Value of a South-Facing Orientation: A Hedonic Pricing Analysis of the Shanghai Housing Market" Habitat International (SSCI JCR Q1), 81.1 (2018): 24-32.

The relationship between the view orientation of an apartment and its property value is examined in the context of Shanghai housing market. Using a hedonic pricing model and a unique dataset, comprised of apartment attributes, ambient environmental indicators and urban spatial structure, this paper shows that a south-facing orientation is associated on average with a 14% premium in property value. Among possible view orientations, due south reflects the highest price. A view of one Shanghai's landmark increases property values by 6%, with this premium being boosted a further 4% by south-facing orientation. Dust pollution lowers prices and shrinks the value of a south-facing view, while PM2.5, which is not visible, has little influence on either. Preference for height in apartment buildings is strongly influenced by the presence of elevators. Internal apartment attributes have the expected signs, but magnitudes can be misleading unless the larger set of apartment attributes is controlled for.

"Stability and Hopf Bifurcation for a Business Cycle Model with Expectation and Delay" (with X Liu, W Cai, Y Wang) Communications in Nonlinear Science and Numerical Simulation (SSCI JCR Q1), 25 (2015): 149-161.

"Does Herd Behavior Increase Stock Price Volatility?" [in Chinese] (with X Liu and C Liu) Systems Engineering theory & Practice (EI & CSSCI Journal), 34.6 (2014): 1361-1368.

"Integrated Risk Research in Commercial Banks Based on Copula Function" [in Chinese] (with X Liu and C Liu) Management Review (CSSCI Journal), 25.10 (2013): 20-27.

"Stability Analysis of a Dynamic Business Cycle Model" [in Chinese] (with X Liu and C Liu) Chinese Journal of Engineering (EI Journal), 36.3 (2014): 127-133.

"Research on Financing Instrument Selection and Financing Scale in Real Estate Industry: Heterogeneous Beliefs Perspective" [in Chinese] (with X Liu and C Liu), South China Journal of Economics (CSSCI Journal), 31.1 (2013): 45-56.

"Credit Risk Assessment in Commercial Banks: A Support Vector Machine Approach" [in Chinese] (with G Chen and C Liu), China Management Informationization 15.16 (2012): 32-37.

Research in Progress

"California Housing Policy Myths and Reality" (with Richard Carson)

"The Demand for Residential Space in the United States: A Count Data Approach"

"Locational Choice in the United States: The Role of Preferences for Residential Space"

"Migration and Housing in California: A Spatial Econometric Approach"

"Evaluating the Perceived Risk of Nuclear Power Plant: Evidence from China's Housing Market" (with Zhong Yi)

"Jobs, Education or Amenities? Locational Decisions of Chinese Immigrants in the United States"