The Effect of the Internet on
Real Estate Market Outcomes:
Evidence from Craig’s List
EconomicsHonorsThesis
Gabriel Lepine...
Agenda
Gabriel Lepine
Introduction
Real Estate
Market Intermediaries
The Internet
Craig’s List
Underlying Theory
Data and ...
Real Estate
Gabriel Lepine
Homeowner Market:
For the average American,
RE is the most expensive investment
RE is the large...
Real Estate
HonorsThesisPresentation
Gabriel Lepine
The Rental Market:
One-in-three households rent their primary
residenc...
Market Dynamics
Gabriel Lepine
Information intensive & information driven
industry
Information is the most important facto...
Market Intermediaries
Gabriel Lepine
Function:
Disseminate market information
Connect buyers with sellers
Reduce informati...
Shortcomings of
Market Intermediaries
Gabriel Lepine
Market information remains imperfect and
transaction costs remain hig...
The Internet
Gabriel Lepine
Most important technological
innovation to impact real estate, since
the automobile and the el...
Craig’s List:
an Internet-based Intermediary
Gabriel Lepine
Founded in San Francisco, CA
by Craig Newmark
A online communi...
Reach of Craig’s List
Gabriel Lepine
Craig’s List expanded into new cities
by popular demand
Craig’s List currently establ...
Influence of Craig’s List
Gabriel Lepine
7th most popular English-language
Internet site
Each month:
15 million distinct i...
A Craig’s List Post
Gabriel Lepine
1br Appt.
$1400/mth.
Castro district
Sunroom
Garden
Parking
Open house
EconomicsHonorsT...
Underlying Theory
Gabriel Lepine
Craig’s List is a better market intermediary that:
Reduces search costs
Reduces transacti...
Hypothesis
1. Craig’s List shifts housing tenure in the
real estate market away from owner-
occupied and towards renter-
o...
Data
Gabriel Lepine
Real estate market outcome data
(2000-2005) obtained from the
American Community Survey
Housing tenure...
32 Cities Considered
Gabriel Lepine
Date launched Cities
6/2000
8/2000
4/2001
10/2002
4/2003
11/2003
1/2004
2/2004
9/2004
...
Regressions
Gabriel Lepine
Regressed the annual change in
housing variable regressed on a
Craig’s List dummy variable
Cont...
Empirical Results
Gabriel Lepine
Craig’s List is robust to all
regression specifications
Magnitude of shift
estimated at 0...
Empirical Results
Craig’s List decreased gross
rent by $12
Value of owner-occupied
units increased modestly
over time
Medi...
Concluding Remarks
Gabriel Lepine
Results empirically document effects of an Internet-
based intermediaries on the real ma...
Questions & Answers
EconomicsHonorsThesis
Gabriel Lepine
I wish to express gratitude to Professor Ignacio Palacios-Huerta
...
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Effect of internet on real estate markets

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Effect of internet on real estate markets

  1. 1. The Effect of the Internet on Real Estate Market Outcomes: Evidence from Craig’s List EconomicsHonorsThesis Gabriel Lepine, Brown University Economics, Entrepreneurship & Technology Spring 2007 Forum April 2007 Gabriel Lepine
  2. 2. Agenda Gabriel Lepine Introduction Real Estate Market Intermediaries The Internet Craig’s List Underlying Theory Data and Methodology Empirical Results Concluding Remarks EconomicsHonorsThesis
  3. 3. Real Estate Gabriel Lepine Homeowner Market: For the average American, RE is the most expensive investment RE is the largest asset Housing captures ¼ of income Infrequent transactions EconomicsHonorsThesis
  4. 4. Real Estate HonorsThesisPresentation Gabriel Lepine The Rental Market: One-in-three households rent their primary residence 34 million renters paying $250 billion in rent annually Low income individuals devote over half of income to housing
  5. 5. Market Dynamics Gabriel Lepine Information intensive & information driven industry Information is the most important factor affecting market participants Market power unequally distributed due to: Information asymmetries Transaction costs EconomicsHonorsThesis
  6. 6. Market Intermediaries Gabriel Lepine Function: Disseminate market information Connect buyers with sellers Reduce information asymmetries and transaction costs EconomicsHonorsThesis
  7. 7. Shortcomings of Market Intermediaries Gabriel Lepine Market information remains imperfect and transaction costs remain high Intermediaries can constrain and manipulate information to induce preferred behavior Market dynamics present promising setting for the Internet to improve efficiency EconomicsHonorsThesis
  8. 8. The Internet Gabriel Lepine Most important technological innovation to impact real estate, since the automobile and the elevator Potential to improve market efficiency by: reducing information asymmetries reducing transaction costs reducing market entry-costs EconomicsHonorsThesis
  9. 9. Craig’s List: an Internet-based Intermediary Gabriel Lepine Founded in San Francisco, CA by Craig Newmark A online community supporting information exchange Craig Newmark, Craig’s List founder Powered by user generated online classified ads EconomicsHonorsThesis
  10. 10. Reach of Craig’s List Gabriel Lepine Craig’s List expanded into new cities by popular demand Craig’s List currently established in 450 cities around the world Information is free to access EconomicsHonorsThesis
  11. 11. Influence of Craig’s List Gabriel Lepine 7th most popular English-language Internet site Each month: 15 million distinct individuals visit CL 14 million new classified ads published Over 5 billion page views EconomicsHonorsThesis
  12. 12. A Craig’s List Post Gabriel Lepine 1br Appt. $1400/mth. Castro district Sunroom Garden Parking Open house EconomicsHonorsThesis
  13. 13. Underlying Theory Gabriel Lepine Craig’s List is a better market intermediary that: Reduces search costs Reduces transaction costs Reduces market entry costs Craig’s List predominately influences rental market Craig’s List makes listing a property on the rental market preferable to the homeowner market Trend reinforced by the snowball-effect EconomicsHonorsThesis
  14. 14. Hypothesis 1. Craig’s List shifts housing tenure in the real estate market away from owner- occupied and towards renter- occupied units 2. Supply movement within the real estate market forces prices to equilibrate in each market EconomicsHonorsThesis Gabriel Lepine
  15. 15. Data Gabriel Lepine Real estate market outcome data (2000-2005) obtained from the American Community Survey Housing tenure and price variables: Percentage of renter-occupied Units Percentage of owner-occupied Units Gross rent Median home value EconomicsHonorsThesis
  16. 16. 32 Cities Considered Gabriel Lepine Date launched Cities 6/2000 8/2000 4/2001 10/2002 4/2003 11/2003 1/2004 2/2004 9/2004 11/2004 San Francisco Chicago; Los Angeles; New York; San Diego Atlanta; Austin; Denver Miami; Philadelphia; Phoenix Dallas; Detroit; Houston Cleveland; New Orleans; Pittsburgh; Tampa; St Louis Providence Nashville; Indianapolis; Kansas City; Orlando Sal Lake City; Jacksonville; Rochester Omaha; San Antonio; Tucson; Richmond; Oklahoma City EconomicsHonorsThesis
  17. 17. Regressions Gabriel Lepine Regressed the annual change in housing variable regressed on a Craig’s List dummy variable Controlling for: market size growth of market city fixed effects year fixed effects years Craig’s List available EconomicsHonorsThesis
  18. 18. Empirical Results Gabriel Lepine Craig’s List is robust to all regression specifications Magnitude of shift estimated at 0.77% Craig’s List found to shift housing tenure to favor renter-occupied units EconomicsHonorsThesis
  19. 19. Empirical Results Craig’s List decreased gross rent by $12 Value of owner-occupied units increased modestly over time Median gross rent decreased, while Owner-occupied units increased in median value EconomicsHonorsThesis Gabriel Lepine
  20. 20. Concluding Remarks Gabriel Lepine Results empirically document effects of an Internet- based intermediaries on the real market estate Craig’s List improves efficiency by: Improving information accessibility Conveniently connecting buyers and sellers Decreasing transaction costs Decreasing market entry costs Craig’s List is inarguably a good entity though not the “end all be all” Other traditional markets can benefit from the Internet to enhance efficiency EconomicsHonorsThesis
  21. 21. Questions & Answers EconomicsHonorsThesis Gabriel Lepine I wish to express gratitude to Professor Ignacio Palacios-Huerta for his academic guidance; two PhD graduate students – Doug Park and Stelios Michalopoulos – for mentoring me throughout my time at Brown; Erica Olsen for her comments and suggestions.

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