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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. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  2. Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," FMG Discussion Papers dp310, Financial Markets Group.
  3. 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.
  4. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  5. 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.
  6. Ioannides, Yannis M. & Seslen, Tracey N., 2002. "Neighborhood wealth distributions," Economics Letters, Elsevier, vol. 76(3), pages 357-367, August.
  7. Haavio, Markus & Kauppi, Heikki, 2000. "Housing Markets, Liquidity Constraints and Labour Mobility," Research Discussion Papers 8/2000, Bank of Finland.
  8. Chiuri, Maria Concetta & Jappelli, Tullio, 2003. "Financial market imperfections and home ownership: A comparative study," European Economic Review, Elsevier, vol. 47(5), pages 857-875, October.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
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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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