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Homeownership

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  • Rady, Sven
  • Ortalo-Magné, François

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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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 28.

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Date of creation: Nov 2002
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Handle: RePEc:lmu:muenec:28

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  1. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  2. Yannis M. Ioannides & Tracey N. Seslen, 2001. "Neighborhood Wealth Distributions," Discussion Papers Series, Department of Economics, Tufts University 0116, Department of Economics, Tufts University.
  3. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November.
  4. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  5. Epple, Dennis & Platt, Glenn J., 1998. "Equilibrium and Local Redistribution in an Urban Economy when Households Differ in both Preferences and Incomes," Journal of Urban Economics, Elsevier, vol. 43(1), pages 23-51, January.
  6. Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," FMG Discussion Papers dp310, Financial Markets Group.
  7. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
  8. Maria Concetta Chiuri & Tullio Jappelli, 2000. "Financial Market Imperfections and Home Ownership: A Comparative Study," CSEF Working Papers 44, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2000.
  9. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
  10. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  11. Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1991. "Index-Based Futures and Options Markets in Real Estate," Cowles Foundation Discussion Papers 1006, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Saku Aura & Thomas Davidoff, 2005. "Optimal Commodity Taxation When Land and Structures Must Be Taxed at the Same Rate," Working Papers 0505, Department of Economics, University of Missouri.
  2. Daniel Richards, 2004. "Price Discrimination and the Long Boom," Discussion Papers Series, Department of Economics, Tufts University 0419, Department of Economics, Tufts University.
  3. Stephen Coate, 2011. "Property Taxation, Zoning, and Efficiency: A Dynamic Analysis," NBER Working Papers 17145, National Bureau of Economic Research, Inc.

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