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  • The Effect of the Internet on Real Estate Market Outcomes:

    Evidence from Craigs List

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    Gabriel Lepine, Brown University

    Economics, Entrepreneurship & Technology Spring 2007 Forum

    April 2007

    Gabriel Lepine

  • Agenda

    Gabriel Lepine

    Introduction Real Estate Market Intermediaries The Internet Craigs List

    Underlying Theory Data and Methodology Empirical Results Concluding Remarks

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  • Real Estate

    Gabriel Lepine

    Homeowner Market:

    For the average American, RE is the most expensive investment RE is the largest asset Housing captures of income

    Infrequent transactions

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  • Real EstateH

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    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

  • Market Dynamics

    Gabriel Lepine

    Information intensive & information drivenindustry

    Information is the most important factor affecting market participants

    Market power unequally distributed due to: Information asymmetries Transaction costs

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  • Market Intermediaries

    Gabriel Lepine

    Function: Disseminate market information Connect buyers with sellers

    Reduce information asymmetries and transaction costs

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  • Shortcomings ofMarket 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

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  • 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

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  • Craigs List: an Internet-based Intermediary

    Gabriel Lepine

    Founded in San Francisco, CA by Craig Newmark

    A online community supporting information exchange Craig Newmark, Craigs List founder

    Powered by user generated online classified ads

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  • Reach of Craigs List

    Gabriel Lepine

    Craigs List expanded into new cities by popular demand

    Craigs List currently established in 450 cities around the world

    Information is free to access

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  • Influence of Craigs 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

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  • A Craigs List Post

    Gabriel Lepine

    1br Appt. $1400/mth. Castro district Sunroom Garden Parking Open house

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  • Underlying Theory

    Gabriel Lepine

    Craigs List is a better market intermediary that: Reduces search costs Reduces transaction costs Reduces market entry costs

    Craigs List predominately influences rental market

    Craigs List makes listing a property on the rental market preferable to the homeowner market

    Trend reinforced by the snowball-effect

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  • Hypothesis

    1. Craigs 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

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    Gabriel Lepine

  • 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

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  • 32 Cities Considered

    Gabriel Lepine

    Date launched Cities

    6/20008/20004/200110/20024/200311/20031/20042/20049/200411/2004

    San FranciscoChicago; Los Angeles; New York; San DiegoAtlanta; Austin; DenverMiami; Philadelphia; PhoenixDallas; Detroit; HoustonCleveland; New Orleans; Pittsburgh; Tampa; St LouisProvidenceNashville; Indianapolis; Kansas City; OrlandoSal Lake City; Jacksonville; RochesterOmaha; San Antonio; Tucson; Richmond; Oklahoma City

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  • Regressions

    Gabriel Lepine

    Regressed the annual change in housing variable regressed on a Craigs List dummy variable

    Controlling for: market size growth of market city fixed effects year fixed effects years Craigs List available

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  • Empirical Results

    Gabriel Lepine

    Craigs List is robust to all regression specifications

    Magnitude of shift estimated at 0.77%

    Craigs List found to shift housing tenure to favor renter-occupied units

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  • Empirical Results

    Craigs 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

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    Gabriel Lepine

  • Concluding Remarks

    Gabriel Lepine

    Results empirically document effects of an Internet-based intermediaries on the real market estate

    Craigs List improves efficiency by: Improving information accessibility Conveniently connecting buyers and sellers Decreasing transaction costs Decreasing market entry costs

    Craigs List is inarguably a good entity though not the end all be all

    Other traditional markets can benefit from the Internet to enhance efficiency

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  • Questions & Answers

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    Gabriel Lepine

    I wish to express gratitude to Professor Ignacio Palacios-Huertafor 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.

    The Effect of the Internet on Real Estate Market Outcomes: Evidence from Craigs ListAgendaReal EstateReal EstateMarket DynamicsMarket IntermediariesShortcomings ofMarket IntermediariesThe InternetCraigs List: an Internet-based IntermediaryReach of Craigs ListInfluence of Craigs ListA Craigs List PostUnderlying TheoryHypothesisData32 Cities ConsideredRegressionsEmpirical ResultsEmpirical ResultsConcluding RemarksQuestions & Answers

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