Economics 4325

Review Questions for Chapters 10 & 12

1 . How are the value price of housing and equivalent monthly rental values related, even for owner occupied housing? (Note use of present value formula.)

2. Why does the federal tax code encourage home ownership, especially in an inflationary economy?

3. What has happened to the overall quality of U.S. housing services since World War II, according to Census measures of adequate plumbing and overcrowding?

4. How has household income growth generated by higher labor force participation influenced the demand (and supply) of housing since World War II?

5. Slums and abandonment are characteristic of many central cities. Why are these problems more likely to have occurred in Eastern cities that have experienced slow growth and net out migration of population?

6. "Abandonment and retirement are rational responses of landlords to housing market influences, and, in fact, demonstrate the efficiency of the adaptive market for housing services." Do you agree with this statement? Why or why not?

7. "Most of the improvement in housing services in this country can be attributed to the adaptive housing market that results in neighborhood filtering." Do you agree with this statement? Why or why not?

8. What factors other than location can differentiate a neighborhood’s housing market and cause market segmentation? How have these factors encouraged new housing in the suburbs and a relative decline in the value of existing houses in the inner city?

9. Can changes in property tax valuations for inner cities reduce abandonment? How could this save the city government in the long-run?

10. What are the principal neighborhood effects affecting slum area? How do they affect a landlord’s incentive for investment in maintenance? How does the influences differ from those of nonconforming land uses that may exist in stable neighborhoods?

11. How does neighborhood attachment affect responses to external costs by many households?

12. Studies have shown that that racial discrimination in housing is greater than the amount predicted by differences in income alone. What other factors could have contributed to differences in housing location and services for blacks versus whites other than income?

13. Why has been argued that racial discrimination cannot exist in a competitive economy? Does the real world conform to the theoretical competitive model? Why or why not?

14. What are the most important federal subsidies for owner-occupied housing?

15. Critically evaluate public housing as a way of improving housing quality for low-income persons.

16. What are Section 8 subsidies? How do they differ from Section 236 subsidies to encourage the development of low income rental property?

17. How would a pure voucher system differ from Section 8 subsidies in terms of their impact on low-income households freedom of choice.

18. Why do rent controls distort the market and adversely affect the supply of rental properties?

Who benefits from such controls?

19. Why has the public been supportive of housing subsidies (as opposed to direct income transfers)?