Owner-occupied housing as an investment, regional house price cycles and residential sorting
AbstractWe develop a dynamic multi-region model, with fluctuating regional house prices, where an owner-occupied household’s location choice depends on its current wealth and its current type and involves both consumption and investment considerations. The relative strength of the consumption motive and the investment motive in the location choice determines the equilibrium pattern of residential sorting, with a strong investment (consumption) motive implying sorting according to the type (wealth). The model predicts a negative relation between the size of house price fluctuations and the degree of residential sorting in the type dimension. Also, movers should be more sorted than stayers in the type dimension. These predictions are consistent with evidence from US metropolitan areas when income, education and age are used as proxies for household type.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 24/2011.
Length: 88 pages
Date of creation: 20 Dec 2011
Date of revision:
residential sorting; house prices; consumption motive; investment motive; incomplete markets; household mobility;
Find related papers by JEL classification:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-18 (All new papers)
- NEP-GEO-2012-01-18 (Economic Geography)
- NEP-URE-2012-01-18 (Urban & Real Estate Economics)
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