Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Monday, December 13, 2010

Location efficiency and mortgage default

From Laurence Aurbach:

This research, "Location Efficiency and Mortgage Default," by Stephanie Y. Rauterkus, Grant I. Thrall, and Eric Hangen, Journal of Sustainable Real Estate, 2:1 2010), analyzed a sample of 40,000 mortgages and found the higher the rate of vehicle ownership, the greater the probability of mortgage default. The authors conclude, "location efficiency matters."

Using a sample of over 40,000 mortgages in Chicago, Jacksonville, and San Francisco, we model the probability of mortgage default based on differences in location efficiency. We used two proxy variables for location efficiency: 1) vehicles per household scaled by income and 2) Walk Score. We find that default probability increases with the number of vehicles owned after controlling for income. Further, we find that default probability decreases with higher Walk Scores in high income areas but increases with higher Walk Scores in low income areas. These results suggest that some degree of greater mortgage underwriting flexibility could be provided to assist households with the purchase of location efficient homes, without increasing mortgage default. They also support the notion that government policies around land use, zoning, infrastructure, and transportation could have significant impacts on mortgage default rates.

Note that this finding jibes with research by Newman and Kenworthy (see "The Ten Myths of Automobile Dependence") that European and Asian cities with lower car ownership rates and better transit systems have greater household wealth than comparable regions in the U.S. and Australia.

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