News Release

CHICAGO — The average value of home prices near O'Hare airport will increase by as much as $17,000 between 1997 and the time after airport expansion, according to Daniel P. McMilllen in an article featured in the latest Economic Perspectives. McMillen notes in "House prices and the proposed expansion of Chicago's O'Hare Airport" that noise reductions from quiter aircraft and runway reconfigurations will lead to the increase, calculated in 1997 dollars, causing home prices to rise by nearly $280 million between 1997 and completion of airport expansion.

McMillen uses recent data on single-family home sales to estimate the effect of noise on O'Hare-area property values to find that home values receive a 10 percent "noise discount" in areas that are subject to severe noise meaused at 65-decibel or higher . In addition, he explains that quieter aircraft and runway reconfiguration are causing the area's 65-decibel contour band around O'Hare to shrink over time, even though air traffic is likely to increase as much as 60 percent after the proposed expansion.

He also finds that each additional mile from the 65-dB noise contour band raises property values by eight percent. He does note, however, that home appreciation rates will not rise significantly near the airport as long as uncertainty looms regarding the expansion plans.

• In another article, "You can't take it with you: Asset run-down at the end of the life cycle,"  Chicago Fed econmists Katharine Anderson, Eric French, and Tina Lam present evidence on the extent to which households run down their assets after retirement. The authors conclude that households engage in very little asset decumulation during retirement.
  
• In "FDIC losses in bank failures: Has FDICIA made a difference?"  Chicago Fed Consultant and Loyola University Finance Professor George Kaufman finds that although the number of failed banks fell sharply after the passage of the FDIC improvement act (FDICIA) in 1991, FDIC losses as a percent of assets of failed banks actually increased. Only if adjustments are made both for large losses at a few larger outlier banks and for differences in the size distribution of failures is the FDIC's loss rate in the post-FDICIA period (1993-2002) reduced to below its pre-FDICIA (1980-92) rate.
  
• Latinos' decision to reside in a Hispanic enclave has a positive, significant influence on the likelihood of owning a home, according to Chicago Fed Economist Maude Toussaint-Comeau and New York Fed Economist Sherrie L. W. Rhine in "The relationship between Hispanic residential location and homeownership." (533KB) They also conclude that Hispanics' decision to live in a certain neighborhood and their decidion to be homeowners are both made at the same time.

For the full text, see the Third Quarter 2004 issue of Economic Perspectives.