1. The Effect of the Internet on
Real Estate Market Outcomes:
Evidence from Craig’s List
EconomicsHonorsThesis
Gabriel Lepine, Brown University
Economics, Entrepreneurship & Technology
Spring 2007 Forum
April 2007
Gabriel Lepine

2. Agenda
Gabriel Lepine
Introduction
Real Estate
Market Intermediaries
The Internet
Craig’s List
Underlying Theory
Data and Methodology
Empirical Results
Concluding Remarks
EconomicsHonorsThesis

3. Real Estate
Gabriel Lepine
Homeowner Market:
For the average American,
RE is the most expensive investment
RE is the largest asset
Housing captures ¼ of income
Infrequent transactions
EconomicsHonorsThesis

4. Real Estate
HonorsThesisPresentation
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

5. Market Dynamics
Gabriel Lepine
Information intensive & information driven
industry
Information is the most important factor
affecting market participants
Market power unequally distributed due to:
Information asymmetries
Transaction costs
EconomicsHonorsThesis

6. Market Intermediaries
Gabriel Lepine
Function:
Disseminate market information
Connect buyers with sellers
Reduce information asymmetries and
transaction costs
EconomicsHonorsThesis

7. Shortcomings of
Market 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
EconomicsHonorsThesis

8. 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
EconomicsHonorsThesis

9. Craig’s List:
an Internet-based Intermediary
Gabriel Lepine
Founded in San Francisco, CA
by Craig Newmark
A online community supporting
information exchange
Craig Newmark,
Craig’s List founder
Powered by user generated online
classified ads
EconomicsHonorsThesis

10. Reach of Craig’s List
Gabriel Lepine
Craig’s List expanded into new cities
by popular demand
Craig’s List currently established in 450
cities around the world
Information is free to access
EconomicsHonorsThesis

11. Influence of Craig’s 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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12. A Craig’s List Post
Gabriel Lepine
1br Appt.
$1400/mth.
Castro district
Sunroom
Garden
Parking
Open house
EconomicsHonorsThesis

13. Underlying Theory
Gabriel Lepine
Craig’s List is a better market intermediary that:
Reduces search costs
Reduces transaction costs
Reduces market entry costs
Craig’s List predominately influences rental market
Craig’s List makes listing a property on the rental
market preferable to the homeowner market
Trend reinforced by the snowball-effect
EconomicsHonorsThesis

14. Hypothesis
1. Craig’s 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
EconomicsHonorsThesis
Gabriel Lepine

15. 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
EconomicsHonorsThesis

16. 32 Cities Considered
Gabriel Lepine
Date launched Cities
6/2000
8/2000
4/2001
10/2002
4/2003
11/2003
1/2004
2/2004
9/2004
11/2004
San Francisco
Chicago; Los Angeles; New York; San Diego
Atlanta; Austin; Denver
Miami; Philadelphia; Phoenix
Dallas; Detroit; Houston
Cleveland; New Orleans; Pittsburgh; Tampa; St Louis
Providence
Nashville; Indianapolis; Kansas City; Orlando
Sal Lake City; Jacksonville; Rochester
Omaha; San Antonio; Tucson; Richmond; Oklahoma City
EconomicsHonorsThesis

17. Regressions
Gabriel Lepine
Regressed the annual change in
housing variable regressed on a
Craig’s List dummy variable
Controlling for:
market size
growth of market
city fixed effects
year fixed effects
years Craig’s List available
EconomicsHonorsThesis

18. Empirical Results
Gabriel Lepine
Craig’s List is robust to all
regression specifications
Magnitude of shift
estimated at 0.77%
Craig’s List found to shift housing
tenure to favor renter-occupied units
EconomicsHonorsThesis

19. Empirical Results
Craig’s 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
EconomicsHonorsThesis
Gabriel Lepine

20. Concluding Remarks
Gabriel Lepine
Results empirically document effects of an Internet-
based intermediaries on the real market estate
Craig’s List improves efficiency by:
Improving information accessibility
Conveniently connecting buyers and sellers
Decreasing transaction costs
Decreasing market entry costs
Craig’s List is inarguably a good entity though not
the “end all be all”
Other traditional markets can benefit from the
Internet to enhance efficiency
EconomicsHonorsThesis

21. Questions & Answers
EconomicsHonorsThesis
Gabriel Lepine
I wish to express gratitude to Professor Ignacio Palacios-Huerta
for 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.