House prices and consumer welfare
AbstractWe develop a new approach to measuring changes in consumer welfare due to changes in the price of owner-occupied housing. In our approach, an agent's welfare adjustment is defined as the transfer required to keep expected discounted utility constant given a change in current home prices. We demonstrate that, up to a first-order approximation, there is no aggregate change in welfare due to price increases in the existing housing stock. This follows from a simple market clearing condition where capital gains experienced by sellers are exactly offset by welfare losses to buyers. Welfare losses can occur, however, from price increases in new construction and renovations. We show that this result holds (approximately) even in a model that accounts for changes in consumption and investment plans prompted by current price changes. We estimate the welfare cost of house price appreciation to be an average of $127 per household per year over the 1984-1998 period.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Urban Economics.
Volume (Year): 58 (2005)
Issue (Month): 3 (November)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622905
Other versions of this item:
- Patrick Bajari & C. Lanier Benkard & John Krainer, 2003. "House Prices and Consumer Welfare," NBER Working Papers 9783, National Bureau of Economic Research, Inc.
- Bajari, Patrick & Benkard, C. Lanier & Krainer, John, 2004. "House Prices and Consumer Welfare," Research Papers 1840, Stanford University, Graduate School of Business.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- D6 - Microeconomics - - Welfare Economics
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