Honoring Cambridge's Professor Christine Whitehead

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

September 15-17, I'll be joining a hundred other economists and social scientists at a conference at Cambridge University to honor Professor Christine Whitehead, one of Europe's leading lights on a range of housing and urban related topics. Christine is particularly known for her work on housing finance, for research on the effects of land use regulation on housing markets, and for working tirelessly to improve housing policy in the UK and around the globe. In addition to her academic reputation and awards, in recognition of her accomplishments Professor Whitehead has been honored by Queen Elizabeth with the Order of the British Empire.

For much of her career Christine has held simultaneous academic appointments at Cambridge University, and at the London School of Economics; at the former university, she was for a time the colleague of long-time UW Real Estate professor Jim Shilling when he taught at Cambridge; and our own Professor and Department Chair François Ortalo-Magné while he was on the faculty of the London School of Economics.

But where she's been has not been nearly so important as what Christine has accomplished; the thumbnail sketch above only hints at her contributions to research and policy. For example, in 1974 she published a seminal econometric model of the UK housing market. Her research productivity has never flagged; she's still undertaking important work on the effects of the current economic downturn on local public finance, for example. In addition to her institution-building work, keeping the flame of housing and real estate economics alive at Cambridge and LSE, Christine has been one of the driving forces behind the European Network for Housing Research, about which I may share more in another post. She has also been coauthor and mentor to many junior (and for that matter, senior!) faculty and researchers. While physically far removed from us, Professor Whitehead clearly embodies the Wisconsin Tradition of combining rigorous scholarship with a concern for real world problems.

I am proud to count myself as one of Professor Whitehead's many friends, and am honored to join with another good friend, Professor Kyung-Hwan Kim of Sogang University, to present our ongoing work comparing the volatility of housing markets around the world, to Christine and to the conference. Appropriately, the meeting is held under the auspices of the Cambridge Centre for Housing and Planning Research, which Professor Whitehead founded and headed for many years.

Professor Whitehead will soon be stepping down from her formal academic appointments, but all of us in housing economics and related fields look forward to continuing to benefit from her future thoughts and writings, and her continued participation in venues like ENHR; and of course her continued friendship.

I'll report back in a few weeks on the conference, and some of the research presented there. For now, from Wisconsin, we have no OBE to give, but we say, Christine, thank you and well done.

Photo of Professor Whitehead, flanked by Stephen Malpezzi (right), and by the late Professor Bengt Turner (left). Courtesy of European Network for Housing Research.

Looking back for signs of trouble

by François Ortalo-Magné, Department Chair, Professor and Robert E. Wangard Chair of Real Estate

Now that the housing boom is over, it is incumbent upon us to look back for signs of trouble to which the market could (and should) have paid attention before it all got too crazy. Monika Piazzesi and Martin Schneider, both at Stanford University, propose evidence from the Michigan Survey of Consumers. The survey asks “Generally speaking, do you think now is a good time or a bad time to buy a house?” A follow-up question asks households the rationale behind their answer. These figures are reproduced (with permission) from their paper.


Allow me to point out the following key features:

• The proportion of households who thought it was a good time to buy peaked way before the end of the boom (2003Q2). The proportion at the peak was not higher than in previous booms.
• The main rationale for the good time to buy was “credit is cheap” but again with a peak in mid 2003 at a level similar to peak levels in past boom.
• What was new this time? From 2003Q2 onward, the popularity of the good time to buy answer started declining but not as fast as in past cycles because of a very unusual increase in households feeling that housing prices would continue to go up, that housing was a good investment.

Piazzesi and Schneider go on to make the point that the proportion of such optimists (called momentum traders) does not need to be high to drive prices to an unsustainably high level.

Lessons for the future should be obvious!

Reference: Piazzesi, Monika, and Martin Schneider, “Momentum Traders in the Housing Market: Survey Evidence and a Search Model,” American Economics Review: Papers & Proceedings, 2009, 99:2, 406-411

Ben Bernanke's "Reading for Life"?

The New York Times' Economix blog last week highlighted some readings on the financial crisis recommended by Fed Chairman Ben Bernanke. One recommendation in particular, Liaquat Ahamed’s “Lords of Finance: The Bankers Who Broke the World,” seemed familiar.

Our own Stephen Malpezzi, professor and academic director of the Graaskamp Center, included Ahamed's book on his Dynamic Dozen list of top books in his 2010 Reading for Life list.

Dr. Ahamed is a polymath who used to work at the World Bank; we overlapped there though our paths did not really cross. Anyone who has read World Bank reports will be stunned to find out that he writes beautifully.

We've highlighted some entries from his list in previous posts, and I highly recommend checking out the list in its entirety for a wide range of worthwhile reads.

Speed networking at the Fall Real Estate Alumni Biennial

Today is the last day to register online for the WREAA Fall Biennial Conference: New Foundations September 16-18th at UW-Madison. Be sure to check out the speed networking session coordinated by faculty member and alum Sharon McCabe. Visit wreaa.org today!

Reconnecting, re-energizing and readjusting

by Kris Hammargren, Senior Associate Director for the Graaskamp Center

Students are starting to arrive on campus (classes begin Thursday), full of stories about summer break. Their activities included internships or project work as well as some well-earned relaxation. But what have our faculty been doing during the summer break?

Faculty and staff of the Wisconsin Real Estate Program have a full plate of activities and responsibilities during the academic year and the summer is no different. Time away from the classroom is spent on participation in professional activities and in renewing important relationships.

I spoke with Professor and Department Chair François Ortalo-Magné about what he has been up to during the break.

Kris Hammargren: Participating in industry conferences is important for anyone who wants to stay up to date on business challenges and opportunities. What did you get out of your visit to ICSC’s RECon Global Real Estate Convention in May?

François Ortalo-Magné: I connected with Bruce Johnson, who is executive vice president and CFO of Regency Centers. Bruce allowed me to shadow him for an investment dinner and 30 meetings in two days at ICSC. It provided me with a fascinating window into the work of the CFO of a public-listed real estate company. It’s very important for me as department chair to have a grounding in the business world, to understand the practical approach of someone like Bruce, to know what it’s like for a top executive to manage his business relationships. We saw a wide cross-section of industry players, met investors, and I learned right there on the frontline great lessons that I will take back to our students.

KH: Bruce is a Wisconsin Real Estate alum who has a long history of involvement with the program. How are relationships like this important?

FOM: Relationships with our alumni are a priority for me. I enjoy connecting with former students of mine, and I love meeting with longtime alumni of Wisconsin real estate. This summer, I was happy to meet with many alumni and friends of the program at ICSC in Las Vegas and also on my travels to New York, Boston and Denver. These meetings are opportunities for me to share with them our plans for the future, get their suggestions to address our concerns, and, just as I did with Bruce, to learn about their business, their values, their successes and failures--lessons which I share with students back in Madison. I always get great feedback and ideas from our alumni. They are experts in real estate, and they share our values (or, I should say, we share their values). Most importantly for me maybe, I get a rush of energy and enthusiasm from their support. There is no greater satisfaction for a professor than to meet former students happy about where their education got them and to meet alumni who are proud of and grateful for the steps we are taking in Madison to continue enhancing the quality and the reach of the membership of the Wisconsin Real Estate Alumni Association.

KH: In addition to work in the U.S., you’ve also been active in France, working with the French government. Would you tell us more about that?

FOM: I have been advising the French government on its efforts to reform the French housing policy. It’s a great challenge: the French housing market is distorted by a multitude of policies that were designed with various non-housing objectives in mind (e.g., to stimulate the economy, to earn the votes of a number of constituencies). The ongoing budget crisis in France and a recent generational change in many government offices has provided an opportunity to clean things up. I try to help by providing “mechanical” support, helping policymakers understand how to best achieve their objectives. The main difficulty with housing lies in understanding how housing prices react to policy intervention, often to transfer the benefits of a policy away from the intended recipient (that’s RE420 or RE720 – urban economics!). Here is a concrete example: If we give young households a subsidized loan to buy their first property in the most expensive French cities while not allowing more supply to be built, we are just helping the current owners in these cities by increasing demand for their property. So subsidizing housing purchases in places where housing is expensive and supply is tight does not resolve the affordability issue that preoccupies the politician. Starting this fall, it looks like the French government may condition the availability of subsidized loans on the release of new building permits by the local authorities. That would be a step in the right direction.

KH: Thank you, François. Like you, I think we’ve all been renewed and re-energized over the summer and are ready to step-up to the new school year.

For more information on our faculty’s activities this summer, check out this previous post with Professor and Graaskamp Center Academic Director Stephen Malpezzi.

Photo by Steve Becker © Steve Becker Media

New MBA student welcome from our new Academic Director of the Real Estate MBA Program

Morris A. Davis, Associate Professor, Real Estate and Urban Land Economics at Wisconsin, is taking on a new role this year as the Academic Director for the Real Estate MBA Program. He met the new class of 2012 MBA students during orientation and shared these thoughts on their partnership with the Wisconsin Real Estate Tradition.

Welcome Class of 2012!

Here is my brief story: I was born in Philadelphia -- a long time ago. I graduated from the University of Pennsylvania in 1993 with a degree in economics and stayed on at Penn to get my Ph.D., also in economics. I completed my studies in 1998 and took a job at the Federal Reserve Board in Washington, DC. After a brief sojourn to work for a small high-tech company in Reston, VA, I returned to the Fed in 2002 to take a position as Alan Greenspan’s housing analyst. I then left the Fed (again) in 2006 to join the Real Estate Department here at UW.

When the Real Estate group first approached me about the possibility of becoming a faculty member, I was honored to be considered. For two reasons. First, it is widely known among academics that the faculty here are the best in the world. Second, the study of real estate essentially started at Wisconsin. James Graaskamp is a name we know and admire, for the right reasons, but much of our current culture begins with Richard Ely. Ely started real estate studies at Wisconsin. Most importantly, Ely shaped our current value system. He would not back away from what he believed in – discovery and integrity – even in the face of long odds, in perhaps the best known episode of his life, being accused of “sedition” that could have lead to his dismissal from the university. Ely’s tenacity and greatness are inspirational.

Given this background, I view my new position as having two complementary objectives. First, I – rather we – must prepare you for the next step in your career ladder. Second, we must prepare you to be alums, and to assume and contribute to the tradition of Wisconsin Real Estate.

There’s a lot of thought that goes into these preparations. We must make sure you have a coherent course load that teaches you the basics of business while offering in-depth study of all facets of real estate theory and practice. We must provide you opportunities to study global business practices and to network with local and global business leaders. And we have to help you decide what the next stage of your career looks like, and help you plan to get there.

We must also teach the basics of what it means to be an alum of the Graaskamp Center. Respect. Honesty. Integrity. Values. Leadership. We did not become great because some otherwise forgettable people lucked into a few good deals. Our greatness comes from our history of outstanding human capital. Wisconsin Real Estate alumni are great men and women. I’ve met them, and they are leaders. They deserve and command respect in their business dealings because of their innovation in the field, their savvy in their deal-making and partnerships, and their integrity and their treatment of others in their business and personal lives.

So, we want to immerse you and your class in the basics of leadership, starting with dressing professionally inside Grainger Hall and on any Real Estate functions. Well-dressed men and women have an edge in any business situation. They are more likely to be treated with respect by their peers and are more likely to speak with thought. Even in 2010, the old adage that “the clothes make the man” rings true.

Next is something I learned from my experiences in business: carry yourself and speak professionally and with respect at all times. Most importantly this includes
respecting the thoughts and opinions of those who disagree with you. Look to your own business experiences–in law, health care, finance, or development. Who were the individuals who got promoted? How did they act? In my experience, leaders in successful organizations lead everyone, not just the people they like. They may not agree with everyone, but they always respect the thoughts and ideas of others around them. Talk with our alumni, and you’ll see they follow this rule. It is part of our tradition.

The final guideline is to act like a leader. If something bothers you, do not simply complain. Work with your peers and with Center staff and faculty to solve problems and create opportunities. In the business world, employees who complain get fired. People who identify problems and then work to solve them get promoted.

Think of today as the fresh start to your new career. What do you want that career to be? How do you want to represent yourself? I know what I expect from you. At the end of your two years here, I want to be able to call up any of our alumni, friends, or contacts on your behalf and be able to truthfully say that you are now qualified to maintain the Graaskamp Center tradition of excellence, integrity, leadership, and values.

I look forward to working with you.

UPDATE: You can view the new partnership agreement with the Wisconsin Real Estate MBA Class of 2012 here.

How to pitch a deal

by François Ortalo-Magné, Department Chair, Professor and Robert E. Wangard Chair of Real Estate

I was recently in New York where I had the opportunity to meet with alumni Marc Warren (BBA '85), president of Linear Realty Capital. Among other things, we talked about the soft skills that our students need to complement their analytical skills. Marc suggested a short video from entrepreneur David Rose on how to pitch a deal. I like the content, and the fact that he makes me sound like a slow talker. His advice applies to many more contexts than just the specifics of pitching to a VC (e.g., see the recommendation at minute 13:00).

Watch the TED Talks video and share your thoughts below.



Enjoy!

U.S. News & World Report ranks Wisconsin Real Estate #2

U.S. News & World Report just released its annual rankings of U.S. undergraduate business programs for 2011. The Wisconsin Real Estate program again ranks second among all U.S. undergrad real estate programs.

The Wisconsin School of Business ranks 14th overall among business schools, seventh among public institutions, and third in the Big Ten.

On Wisconsin!

Wisconsin Real Estate goes to Costa Rica

Wisconsin Real Estate is visiting INCAE in Central America this week! Faculty Associate Joe Walsh, one of the administrators of our Global Real Estate Master program, is on campus in Costa Rica for a series of visits with faculty and staff of the top-ranked business school plus meetings with local industry leaders and students. We're grateful to Guillermo Selva and everyone at INCAE for arranging the schedule for the visit.

Wisconsin's new Global Real Estate Master (GREM) degree program is a partnership between three of the world's top business schools--INCAE, HEC Paris and the HKUST Business School--and the top ranked Wisconsin Real Estate Program. This unique initiative brings students from all corners of the globe to study the best in real estate education in Madison. The inaugural GREM class will arrive on campus in January 2011 for an intensive spring semester of activity.

To learn more about the GREM partnership, visit www.bus.wisc.edu/grem/. Or click on INCAE's GREM program page.

Treasury plan to help unemployed homeowners is no help at all

by Stephen Malpezzi, Professor and Lorin and Marjorie Tiefenthaler Distinguished Chair in Real Estate

Readers of the Wisconsin Real Estate Viewpoint will know of our efforts, since early 2009, to think through the best way to tackle the increasing wave of defaults and foreclosures. These foreclosures threaten the fragile stability of house prices, driving them below levels justified by fundamentals—just as circa 2004-2006 a series of bad decisions on financial and regulatory fronts, along with no small amount of "irrational exuberance," drove them above prices justified by fundamentals. In response, we designed something we call the Wisconsin Foreclosure and Unemployment Relief (WI-FUR) plan which provides temporary support to cash-strapped unemployed households to help them stay current on their mortgage.

Let me put a normative statement on the table: in normal times, I would be opposed to a plan like WI-FUR. But these are not normal times: unemployment is still at 10%+, at record duration; a quarter of the nation's mortgages are under water; and house prices are on a knife edge.

If a version of WI-FUR were enacted, some homeowners would be bailed out of bad decisions they made about house purchases and mortgages. More significantly, others would be helped who had made what were, at the time, apparently good decisions; but now they cannot pay previously affordable mortgages; they're unemployed and the value of their homes has fallen below that of their mortgage. (Even if they have positive equity, some unemployed will default because of the income shock, and might end up with a distressed sale rather than a foreclosure; but in today’s environment, large numbers of distressed sales can also lower house prices).

Every foreclosure in today's environment imposes costs on neighbors, the financial system, taxpayers, and the economy as a whole. It's as if houses in our neighborhood have caught fire, some because an irresponsible person was smoking in bed, some because of an unseen short in their electrical system. Before we condemn the smoker, let's put the fire out first before we all burn. (And let's fix the electrical system while we're at it!)

The government’s signature plan to deal with foreclosures is the so-called Home Affordable Mortgage Program (HAMP). Despite $75 billion allocated by Congress to assist up to 4 million distressed households (it was thought), less than 10% of that number of borrowers have received permanent loan modifications so far; and those modified loans are, after the fact, still defaulting at high rates. Some experts predict that up to 2/3 of modified loans will, in fact, default.

HAMP's ineffectiveness is by now well known; see, for example, the July 21, 2010 quarterly report to Congress by SIGTARP (Special Inspector General for the Troubled Asset Relief Program)'s Neil Barofsky; pages 5-7 of the executive summary give an overview. Or see the Government Accountability Office report Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement Foreclosure Mitigation Programs.

The WI-FUR plan, and complementary plans put forward by our colleagues at the Boston Fed and elsewhere in the Fed system, argue for temporary housing vouchers (or loans) aimed at the unemployed, who have become the majority of foreclosures and who are often effectively (if not "de jure") ineligible for assistance through normal HAMP channels.

Recently our friend Karen Rivedal, who writes the Wisconsin State Journal's real estate blog Property Trax, asked me to comment on a recent variant of the HAMP program called Home Affordable Unemployment Program, or HAUP.

When I first heard of HAUP, I was excited, but my excitement quickly turned to disappointment. Among other problems, it requires that unemployed homeowners go through a fairly bureaucratic procedure to apply for what is (more or less) three months forbearance. And that' s merely the application; forbearance may or may not be granted for the 3 months. Remember, at the present time, the AVERAGE duration of unemployment is 9 months and rising.

(The fine print says you can extend beyond 3 months, but it's not clear that will happen, and will certainly not be clear to potential applicants).

The website's FAQs does not even tell people if the differences between the original payments and the reduced payments, are forgiven, or wrapped into the loan. (When I inquired of the experts in Washington, it turns out part of the loan is forborne, adding to the loan amount, but it’s amazing that they ask people to apply without clearly explaining such a key element of the program!)

What if your unemployment lasts more than three months (which is true for most unemployed today?) After two months you are given an application for HAMP, the dog that won't hunt. As far as I can tell, most unemployed will still not qualify for HAMP after they fill out this application.

There are other details that limit the program’s scope, and hence its effectiveness at halting the skid in housing prices. Homeowners can't get relief on the second liens. And if I read it right, HAUP does nothing for the unemployed not receiving unemployment insurance.

My bottom line: Treasury is still spitting on the fire and leaving the hoses coiled up.