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Homeownership: Low Household Mobility, Volatile Housing Prices, High Income Dispersion

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Author Info
Francois Ortalo-Magne ()
Sven Rady ()

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Abstract

We develop a dynamic stochastic equilibrium model of two locations within a city where heterogeneous households make joint location and tenure mode decisions. To investigate the effect of homeownership on equilibrium prices and allocations, we compare the response of this model economy to a labor shock with that of a rental-only version. This comparison yields three results. First, homeownership enables more households to remain in the more desirable location at the expense of newcomers. Second, homeownership adds to the volatility of the housing market. Third, homeownership may amplify the dispersion of household income within a location. Homeownership raises distributional issues. The households who consume the most housing gain the most from the ability to own their home. Newcomers to the city are the main losers.

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File URL: http://www.cesifo-group.de/DocCIDL/cesifo_wp823.pdf
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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 823.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_823

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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

Cited by:
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  1. Saku Aura & Thomas Davidoff, 2005. "Optimal Commodity Taxation when Land and Structures must be Taxed at the Same Rate," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  2. Hanno Lustig & Stijn Van Nieuwerburgh, 2006. "Can Housing Collateral Explain Long-Run Swings in Asset Returns?," NBER Working Papers 12766, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-occupied housing as a hedge against rent risk," Working Papers 05-10, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
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