Todd Sinai is an Associate Professor of Real Estate and Business Economics and Public Policy. His research focuses on commercial real estate and REITs, real estate and public economics, risk and pricing in housing markets, taxation of real estate and capital gains.
“Interesting things happen when people need a place to live; they have to like the places they live, and that affects the decisions and tradeoffs they make.”
And so launches our conversation about why Professor Sinai chose to focus on real estate after completing his PhD in Economics.
“Most of the time when we study things in the economy, some firm’s gonna come in and make more of what it is that you need. But you can’t do that in real estate because you only have so much land, and that changes what happens.”
On the first day of Real Estate Finance, he explained the field as the interplay of economics, finance, and consumer psychology. A large part of his research focuses on the apparent anomalies in people’s behaviors and situations.
“If you have more uncertainty about your income, you probably save more of your income and spend less of it, right? But if we look at people’s housing, that doesn’t seem to happen. The more uncertainty about their income, the bigger houses they buy.”
He explains the circumstances in which this type of behavior makes sense, ”Suppose you come out of Wharton and take a new job, and you’re looking at your future. Either you’re going to be successful, get promoted and you’re going to stay in NYC, or you’re going to be unsuccessful, get laid off and find some other job or move home. So what do you do? Do you buy an expensive house or inexpensive house?”
“…the expensive house?”
“If you buy the cheap house and you get the promotion and you stay, then you have to buy another expensive house. But if you bought the expensive house to start with, and you became unemployed and moved back home, you would do that move whether you bought the expensive or inexpensive house. The cost of that move is the same. So now you’ve actually just wasted a whole bunch of money by forcing yourself to move if you get lucky. If you’re unlucky you’d move anyway, so buy the house that you would actually want (assuming you have the income). It turns out to be more cost effective.”
Nice, I just got permission to blow tons of money.
He continues, “But this only works if you’re really successful or really unsuccessful that you would have to move. So understanding that kinda thing is where the fun in this job comes in.”
Professor Sinai looks at the world around him for seeming contradictions and then finds logical ways to explain them. Over and over again he uses the phrase “completely fascinating.”—a true economics nerd.
“All your areas of research and publications are in real estate, and then I see a paper on air traffic delays. How does that make sense?”
With a crooked grin he responds, “Well, if you give a professor a beer and stick him in the Philadelphia airport with a 2.5 hour delay, what you get is a paper. A colleague and I were sitting there drinking beers and looking out the window at the planes waiting to take off. That’s crazy! You can get them out every 2-3 minutes, so 20 planes is like a 40-60 minute line in good weather. The usual economist view of this is that it’s a tragedy of the commons. But if you look out at the runway when there are 20 planes in line, they’re all basically US Airways. So you think wow that’s crazy because US Airways should be smart enough to know that if they schedule 20 planes to go out at 6 o’clock, only one can go – I’m gonna delay myself. So that was the epiphany: why would you ever do that?”
He adds, “What you actually see is that airlines are optimizing. They’re saying it’s better to have some delay in the system, in exchange for being able to offer a lot more destinations from a hub airport.”
The conversation then shifts to urban economics and how cities can attract residents, leading to this interesting tidbit about Center City:
“The City of Philadelphia is not necessarily the driving force behind the revival of Center City. It’s really the Center City district, which is a business improvement district formed by landlords. The business improvement district says that if maybe 75% of property owners vote to invest in something, then the other 25% have to participate. So that meant streets got cleaner, better lighting, policing techniques, other innovations. This is very much the Guiliani version of New York. The landlords did it because if the city goes downhill then their property values go to zero…It’s fascinating for someone like me who thinks about the role government can constructively play, which is that there is a set of stuff that people would happily be taxed to pay if it would actually improve their lives.”
Yet another example of Professor Sinai finding inspiration in his day to day to drive his research, teaching, and insights.
1. What is your favorite word? Todd
2. What is your least favorite word? Grey
3. What makes you happy? Food
4. What makes you unhappy? Bad weather
5. What sound do you love? Laughter
6. What sound do you hate? Yelling
7. What is your favorite curse word? Shit
8. What profession other than yours would you like to attempt? Ski bum
9. What profession would you not like to do? Garbage collecting
10. If heaven exists, what would you like to hear God say when you arrive at the pearly gates? Hi J