stock repurchase announcements: a test of market ... - Asbbs.org

McGrath
Himmelberg, Mayer, and Sinai (2005) recent study on the subject of high housing prices
and bubbles outlines how the im puted rent – a measure of the an nual cost of homeownership –
would be determined. One of the six components of the annual imputed rent is the annual cost of
property taxes.
DATA
Indiana is com prised of 92 counties. Three counties have populatio ns greater than
200,000 individuals. The y are, in order, Marion (Indianapolis), Lake (Hammond/Gary), and St.
Joseph (South Bend). In Table 1, we present summary statistics of the data with which we began
the analysis.
On average, count y populations gr ew by 9.2% through the 199 0s in Indian a
(POPGRWTH). Based upon p opulation growth t hrough the 1990s the counties surroundin g
Marion Count y, such as Hamilton (67.7%), He ndricks (37.5%), Johns on (30.8%), Hancock
(21.7%), and Boone (20.9 %), have experienced sig nificant popu lation influx. Lake County’s
population growth for the decade of the 1990s was only 1.9% implying that Lake County’s ability
to attract new residence s was w eak (whether they chose to build new hom es, purchase exis ting
stock, or rent) well before the change in propert y taxes. Neighboring Lake Count y to the east is
Porter County which enjoy ed an increase in it s population of 14% over the same ti me period.
The construction of new houses adds to the existing stock of housing and thus to the tax
base and may be thought of as an indicator as to the overall attractiveness of an area, as well as an
engine of future growth. Housing investment studied here is measured as the percentage increase
in the num ber of new sin gle fam ily houses built in 2003 relati ve to the previous year’s stock
(NEWINV). The data for the num ber of new singl e family houses built and the previous year’s
stock is provided by the U.S. Census. The average across the 91 counties for which we have data
is 1.03% . Data for Green e County for 2003 was not available, thus Greene County has been
dropped from further analysis.
As mentioned above, Hendricks County, which lies just west of Indianapolis, experienced
a relative housing boom in 2003 with NEWINV equal to 5.5% to lead all counties. Following
Hendricks County in such investment are Hamilton (4.4%), Hancock (3.7%), Switzerland (2.7%),
Boone (2.3%), and Johnson (2.2%) counties. Of these only Switzerland County, which is located
in the far sou theast corner of Indiana, is not directly adjacent to Marion County. Lake Co unty
experienced a 0.78% investment rate, which is below the average, but is roughly within one-half a
standard deviation from the mean.
In order to e xamine to w hat extent co unty property tax differen ces may play in these
differing rates of investment, we will relate the housing investment measure to the gross property
tax rate by county, as well as other variables of ten cited as determinants of housing demand and
supply. We will assume that capital markets are efficient. And since the data is cross sectional,
borrowing costs – mortgage rates, fees, etc - will not be directly included. To some extent such
costs may differ by the prospective homebuilder’s income level. As such, m edian income may
capture access to capital, as well as purchasing power.
County property tax rates for 200 1 (payable 2002) are from the Indiana Department of
Revenue and can be located at STATSIndiana at www.st ats.indiana.edu. The state’ s mean
property tax rate (PROPTAX) was 2.93% with a st andard deviation of 0. 47%. Lake County’s
ASBBS E-Journal, Volume 4, No.1, 2008 142