In the excitement of shopping for a new house, it is likely few buyers think of how much the width of the street pushes up the base price or how much a setback adds to cost.
But it is just these expenses that were the subject of a 1997 real estate study commissioned by Wisconsin builders and realty agents.
Criticized, on the one side, for constructing homes too expensive for average homeowners in suburban Milwaukee’s fast-growing Waukesha County, the builders, at the same time, had to comply with a mushrooming array of local building regulations.
“Our perception was that these regulations were contributing to higher housing costs, but we needed to quantify that,” says Jerry Deschane, director of government affairs of the Wisconsin Builders Association.
Teaming up with the Wisconsin Realtors Association, the WBA turned to real estate researcher Richard Green for some answers.
Green is an associate professor of real estate and urban land economics at the University of Wisconsin in Madison. He also is acting director of the Center for Urban Land Economics Research, a think tank associated with the school.
Using computers and a sophisticated statistical analysis, Green found that land use rules do affect home costs (some rules more than others) and the most affected is lower-cost housing.
“Logically that would seem to be the case,” he says of his findings. “If you restrict something, then it has an impact.”
Still, he insists he makes no guarantees to any clients and they have to take his findings as he reports. In this case, the study’s sponsors were so pleased they sent his conclusions to every elected official in Wisconsin.
The project is all part of the job description for Green, who works at one of the oldest and best-known of more than two dozen academic real estate research centers in the country.
The purpose of all the centers “is to try to improve knowledge,” says Edwin Mills, professor emeritus of real estate at Northwestern University and the founding director of that school’s Guthrie Center for Real Estate Research.
Green is among those who persuasively argue that much of the knowledge has a long-range impact on individual and corporate buyers.
Once upon a time–not so long ago– there were periodic “credit crunches,” notes Green. Home buyers could not get mortgages from financial institutions because the money had all been lent out. But research into the problem led to development of home mortgage securitization, he says, and the secondary market now widely used by lenders to sell mortgages so they can, in turn, make more loans.
The academic world also provided much of the ground work for the creation and evolution of commercial Real Estate Investment Trusts (REITs), the new wave in securitization that is quickly moving property from private to public hands, he says.
Such research “is big picture,” contends Green, “but very practical.”
There is perhaps no more direct intersection between research centers and the real world, he points out, than the flow of academics who have taken their ideas and research to positions in private industry in the last decade.
Among the most recent is Peter Linneman, who recently took a leave from the University of Pennsylvania’s Wharton’s School to join Chicago financier Sam Zell in a new venture.
There are more than two dozen real estate research centers, as well as an estimated 500 real estate professors working at 249 universities. A handful of centers have achieved national reputations either for specific expertise or the quality of work.
Harvard University’s Joint Center for Housing, for example, annually releases a much-sought-after publication called State of the Nation’s Housing, a report card on affordability and how the nation is doing on home ownership.
The University of Pennsylvania’s Wharton School is reputed to have close ties with Wall Street and thus is regarded as a center for realty finance. The University of California at Berkeley is respected for commercial real estate expertise.
Wisconsin is “up and coming,” says David Crowe, staff vice president of the National Association of Home Builders, and is perhaps best known for its work on housing.
They are hired by government agencies, special interest groups and private companies to provide “independent, unbiased and creditable information on issues ranging from taxes and growth to timber and labor,” says Crowe.
Unlike consultants who are used for more immediate problems, “school research centers are typically hired for long-term projects,” says Glenn Mueller, president of the American Real Estate Society (ARES), a national group for real estate academics and professionals, and managing director of real estate research for Legg Mason Wood Walker, a Baltimore investment firm.
Like many centers, the UW center at Madison has a small nucleus of professors who investigate questions for clients or their own curiosity.
Working from a suite of offices in the business school, the researchers “spend part of the month in front of computers,” says Green, “but we have a lot of interaction in the real world, too.”
The staff talks regularly with government officials, industry representatives and such interested outsiders as the Federal Reserve Bank of Chicago. They have worked with organizations like the World Bank and Brookings Institute. And they have tackled topics ranging from the accuracy of office rental forecasts and why homeowners don’t prepay mortgages to how the achievement level of children of homeowners compares to children of renters and the relation of property value in Asia to the monetary exchange rate.
“I spend 40 percent of my time teaching, 40 percent in research and 20 percent serving on local and state committees, commissions, etc.,” says Green.
As part of the mandate at his school, the UW researchers provide services, such as educational seminars, and gather local and regional real estate data, much of which is unavailable elsewhere. The center is funded, in part, through state license fees by realty agents, a common way of supporting such programs in addition to private grants and commissions for projects.
University research centers are funded in a variety of ways, including the formation of an advisory board of several dozen industry representatives who contribute to a center’s finances, says David Hartzell, president of the American Real Estate and Urban Economics Association (AREUEA), a national group of academics and professionals, and director of real estate at the University of North Carolina, Chapel Hill.
In addition to providing money, the boards can provide cross-pollination of ideas and information, he says. Industry professionals on the advisory boards bring real world situations and problems to academia while at the same time gaining access to the latest ideas from a school’s staff and students.
Think tanks and the independent work of individual academics contribute to the study of “the nation’s biggest industry,” according to Mueller of the American Real Estate Society.
He says real estate “accounts for almost half of the privately owned wealth in the United States–buying a house is the largest investment an individual makes in a lifetime–and in the commercial area, one of the largest assets a company has is property.”
And more than 5 million people in the U.S. in 1996 were employed in an identifiable real estate field, according to AREUEA, which has offices at Indiana University’s Center for Real Estate Studies.
Yet the establishment of academic programs has occurred when “the subject got interesting” and has tended to parallel the industry’s well-known ebb and flow, says Northwestern’s Mills.
During boom times in the 1980s, he notes, there were endowments to universities from business people who had been successful in the field, including one to Northwestern from Chicago-area entrepreneur Gary Rosenberg.
“Real estate programs are not as well defined as some other academic programs,” he admits. Commonly students take a general survey course and additional classes on housing, commercial real estate, and possibly international real estate or urban planning, says Mills.
“Many schools will have a class to allow you to get a Realtor license,” he notes. The subject is not generally a major, but an area of concentration and is often studied in conjunction with a related subject, both in undergraduate and graduate programs.
For example, a common combination for real estate students in Northwestern’s two-year master’s in management program is real estate and finance, says Mills.
Educators agree the subject has a mixed public perception.
“When you say real estate, most people think real estate broker,” admits Susanne Cannon, associate professor of finance at DePaul University and head of the school’s real estate studies.
But brokers “are most likely housewives, beauticians, teachers who have gone to classes to sell real estate,” she says.
“In an academic program, it is a focus within finance on managing one special asset; it is on how to make the decision to make an investment and the portfolio implications for risk and reward,” Cannon explains.
The “core constituency” in the DePaul program, says Cannon, “is the student whose family has been in real estate development or property management. Many of the others are people who didn’t know what they wanted and wandered into it.”
She estimates over half of nearly 200 people who graduated from DePaul with a degree in finance in 1998 took one or more real estate classes.
The job market for those studying real estate evolved with the industry, says Peter Colwell, professor of finance and director of the Office of Real Estate Research at the University of Illinois at Urbana-Champaign.
“There have been changes over the years. In the years of the savings and loan crisis, the job market was in appraisers,” he says.
Although no statistics are available, he suspects many who have been through real estate programs “in the last couple of years” have found jobs as “financial analysts.”
“Where we once graduated people who went into the real estate departments of major lenders, today’s graduates are probably working for construction firms” or “as financial analysts who know about REITs and mortgage-backed securities,” says Colwell.
Despite the booming real estate industry, the educators give mixed reports on whether academic real estate programs are thriving.
Whatever the future of such programs, NU’s Mills believes the contribution of the last 10 years has had an impact that may be particularly evident in research.
“The intersection of scholarly research with the federal government is much more sophisticated than it was a decade ago,” he observes. “Departments like HUD (Housing and Urban Development), which has its own researchers, have learned from academic and independent think tanks, which study questions of concern. And the private sector has benefited in managing assets and investing.”
