1. Efficiency in the market for cooperative dwellings Silje Eretveit, Karl Robertsen and Theis Theisen Department of Economics and Business Administration University of Agder Norway

2. Introduction Efficiency in housing markets important Efficiency over time: Case and Shiller (1989) Efficiency with respect to financial arrangements: Goodman and Goodman (2007) Kelley (1998) Schill et. al (2007) Hjalmarsson and Hjalmarsson (2009) Robertsen and Theisen (2011) The present paper builds on RT and HH

3. Norwegian housing cooperatives 15 % of dwellings in the country are cooperative Housing cooperatives non-profit institutions. Special law To obtain a co-op one has to buy a share in the cooperative A share in the cooperative gives the right to use a specific dwelling The shareholder is free to sell his unit on ordinary market conditions Housing cooperatives are partly financed by mutual debt The mutual debt is paid down through monthly rent The interest rate on mutual debt is in Norway lower than on private debt All shareholders are formally responsible for the full mutual debt

4. The price of a co-op The price of a dwelling in a housing cooperative consists of two elements: An equity price determined through a normal competitive bidding process The mutual debt: Each dwelling carries a share of the debt held by the cooperative. The living space of the dwelling determines the share of mutual debt affiliated with the dwelling

5. We consider two identical dwellings Dwelling A carries a mutual debt Mutual debt is paid down through rent. At time 0, the dwelling is bought at the price Dwelling B carries no mutual debt At time 0, the dwelling is bought at the price The full purchasing price has to be financed privately What is the relationship between, and ? How do equity-prices of the two dwellings change over time (Assume zero inflation: Price of dwelling B constant

6. The financial effects for holders of the two dwellings: Dwelling A - Lower interest paiments than dwelling B - „Overprice“ when the dwelling is bought - Capital loss when the dwelling is sold Dwelling B - Since we abstract form inflation, the price that the dwelling can be sold for is constant over time

7. Time P T 0

8. The relationship between equity prices at time 0 Înterest discount effect The model can be estimated if mutual debt is known (Robertsen and Theisen (2011))

9. The case when mutual debt is not observed (Hjalmarsson and Hjalmarsson (2009) Rent-function: gives: Substitution into equity-relationship, with, :

10. Asumptions (of Hjalmarson and Hjalmarson): Yield the HH-equation; Easily estimated IF a is known

11. We estimate the two regression functions:

12. Dwellings in housing cooperatives (N=1050) MinimumMaximumMeanSt. deviation Equity price55 0003 600 0001 504 910451 656 Mutual debt-23 3232 700 000279 608391 443 Rent97513 5313 1621 455 Size231747121 Age1653716 Data: All co-op transactions 2009-2010 in Kristiansand municipality

13. Mutual debtPV annual rentPV maintenanceSizeAge Mutual debt10,61630,05260,1510-0,7053 PV annual rent10,57280,3200-0,5130 PV maintenance10,3821-0,0831 Size1-0,1981 Age1 Correlation matrix

14. RESULTS Robertsen TheisenHjalmarsson Mutual debt-0,80*** (-20)- PV annual rent--0,41*** (-11) PV maintenance-1,23*** (3) Size26 090,7*** (14)23 721,8*** (9) Size+50-13 573,8*** (-6)-16 207,1*** (-7) Age-12 926,9*** (-4)12 343,6*** (4) Age+2516 438,8*** (4)-14 311,4*** (-3) Constant331 990,5 (3)-719 474,4 (-4) 0,70490,6340 F48,9035,09 (t-values in parentheses)

15. Conclusions: Empirical support for efficient prices in the Robertsen-Theisen model The efficiency hypothesis is rejected when the Hjalmarsson-Hjalmarsson model is used with their original assumptions. Problem: The payback-rate for mutual debt must in the HH-model be pegged prior to estimation. The results are very sensitive to the magnitude chosen for this parameter. Also other assumptions in the HH-model are problematic.