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Heterogeneity within communities: A stochastic model with tenure choice

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  • Ortalo-Magné, François
  • Rady, Sven

Abstract

Standard explanations for the observed income heterogeneity within US communities rely on heterogeneity of the housing stock and differences of preferences across households. We propose a dynamic stochastic model of location and tenure choice where homes are identical within locations and households initially differ according to income only. The model highlights how differences in the timing of moves generate income heterogeneity across homeowners, in particular within communities that experience strong positive demand shocks. Using US Census data, we provide evidence of the relevance of this income mixing mechanism. Our empirical findings suggest that incorporating information on time since moved and tenure choice may be useful in the estimation of equilibrium sorting models and of households' willingness to pay for local amenities, especially so in communities with a history of strong housing price growth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 64 (2008)
Issue (Month): 1 (July)
Pages: 1-17

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Handle: RePEc:eee:juecon:v:64:y:2008:i:1:p:1-17

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Equilibrium sorting Income mixing Housing demand Tenure choice;

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References

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Citations

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Cited by:
  1. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," NBER Working Papers 17250, National Bureau of Economic Research, Inc.
  2. Martin Gonzalez-Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," 2004 Meeting Papers 199, Society for Economic Dynamics.
  3. Markus Haavio & Heikki Kauppi, 2006. "House price fluctuations and residential sorting," 2006 Meeting Papers 774, Society for Economic Dynamics.
  4. Christian A. L. Hilber & Yingchun Liu, 2007. "Explaining the black-white homeownership gap: the role of own wealth, parental externalities and locational preferences," LSE Research Online Documents on Economics 4380, London School of Economics and Political Science, LSE Library.
  5. François Ortalo-Magné & Andrea Prat, 2005. "The Political Economy of Housing Supply," Levine's Bibliography 122247000000000954, UCLA Department of Economics.
  6. Pablo Casas-Arce & Albert Saiz, 2006. "Owning versus leasing: do courts matter?," Working Papers 06-21, Federal Reserve Bank of Philadelphia.
  7. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-99, November.

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