The Economist Who Changed the Way We Think About Housing
John M. Quigley, who died last week, was a pioneering economist who helped change the way we think about housing. He devised statistical models of housing quality and the risks inherent in mortgage-backed securities, documented the discrimination that restricted the housing choices of African-Americans, and wrote about the impact of housing wealth on consumption.
In 1970, the Journal of the American Statistical Association published a path-breaking paper by Quigley and his mentor, the urban economist John Kain, on the determinants of housing prices. They were not the first economists to try to tease out the impact of structure and neighborhood on prices and rents, but Kain and Quigley had a rich data set that enabled them to develop the prototype for papers estimating the value of housing quality.
Some of their facts seem quaint today (“a new structure will sell for $3,150 more than an otherwise identical one that is 25 years old”), but other results, such as the link between school quality and rents, set the stage for future breakthroughs. Perhaps the best papers we have documenting parents' willingness to pay for better schools is Sandra Black’s work comparing prices across otherwise identical school districts. Her research follows directly from Kain and Quigley.
One of their most surprising facts was that prices were higher, not lower, in areas with larger numbers of African-Americans. This fact seemed to suggest that barriers to black mobility were making it difficult for African-Americans to find inexpensive homes.
This finding helped inform their second research agenda on racial discrimination in American housing. In 1972 in the American Economic Review, Kain and Quigley established that African-Americans were less likely to be homeowners, even holding income constant, presumably because of discrimination. They argued that this homeownership gap meant that blacks had to pay more than whites for housing, because they missed out on the financial benefits of homeownership such as the mortgage interest deduction.
Economists routinely study segregation and discrimination today, but it would be hard to overstate the novelty of Kain and Quigley’s work. It helped expand economics as a field, and led to constructive debates about the wider impact of housing, discrimination and segregation.
After Harvard, Quigley went to Yale as a junior faculty member. Berkeley became his permanent academic home in 1979. In 2001 he published his most influential work, his research with Karl Case and Robert Shiller comparing the impact of housing wealth and stock market wealth on consumption. As we continue to debate whether the continuing doldrums of the housing market pull down our entire economy, this work is more timely than ever.
In 2001, in the shadow of Internet bust, there was great fear that declining stock prices would cause consumption to plummet and drag America into an awful recession. A countervailing hope was that high housing prices would offset this trend and keep Americans buying.
On a theoretical level, it wasn’t obvious that high housing prices should increase consumption, because we all enter into the world short of housing. While sellers benefit from higher prices, buyers lose. Higher prices are essentially a transfer from buyers to sellers, so it isn’t obvious that they represent a national increase in wealth.
Yet Case, Shiller and Quigley found dramatic evidence that increases in housing wealth were associated with increases in consumption. Indeed, as America hummed along with the housing bubble from 2001 to 2006, their work only gained validity.
At first a skeptic, I came to accept that people seemed to happily spend more as housing prices increased. This doesn’t mean that the government should be pursuing policies that artificially boost housing prices; higher prices for sellers hurt buyers, and economic recoveries can happen even with a somnolent housing market. Quigley’s housing wealth paper yet again reminds us of just how important housing is to the larger economy.
Quigley's legacy is not captured by his written works. He was also an inspiring presence, passionate about real-world issues and dedicated to rigorous scholarship. He was unfailingly kind to younger scholars, including myself. He will be missed.
(Edward Glaeser is a Bloomberg View columnist.)