AbstractWe 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 InfoPaper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 28.
Date of creation: Nov 2002
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-DGE-2003-07-10 (Dynamic General Equilibrium)
- NEP-GEO-2003-07-10 (Economic Geography)
- NEP-URE-2003-07-10 (Urban & Real Estate Economics)
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