Housing Vacancies, Thin Markets, and Idiosyncratic Tastes

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Housing Vacancies, Thin Markets, and Idiosyncratic Tastes

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Richard Arnott

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Richard J. Arnott

Abstract

This paper presents a model with rental housing vacancies in equilibrium. Because of the indivisibility and multi-dimensional heterogeneity of housing units, the market is thin. As a result, a typical household entering the market is willing to pay a premium of its most-preferred over its second most-preferred available (vacant) unit. This confers monopoly power on landlords, which they exploit by setting rents above costs. Free entry and exit force profits to zero, with vacancies as the equilibrating mechanism. Thin markets are modelled by assuming an idiosyncratic component to household's tastes over housing units. The model is extended to treat costly search.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 722.

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Length: 38 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:qed:wpaper:722

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Article
- Arnott, Richard, 1989. "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," The Journal of Real Estate Finance and Economics, Springer, vol. 2(1), pages 5-30, February.

Cited by:
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Min Hwang & John Quigley, 2006. "Economic Fundamentals in Local Housing Markets: Evidence from U.S. Metropolitan Regions," Berkeley Program on Housing and Urban Policy, Working Paper Series 1050, Berkeley Program on Housing and Urban Policy. [Downloadable!]
Other versions:
- Min Hwang & John M. Quigley, 2006. "Economic Fundamentals In Local Housing Markets: Evidence From U.S. Metropolitan Regions," Journal of Regional Science, Blackwell Publishing, vol. 46(3), pages 425-453. [Downloadable!] (restricted)
Richard Arnott & Paul Anglin, 1995. "Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis," Boston College Working Papers in Economics 302., Boston College Department of Economics. [Downloadable!]
Other versions:
- Arnott, R. & Anglin, P., 1995. "Are Brokers' Commission Rates on Home Sales Too High? A Conceptual Analysis," G.R.E.Q.A.M. 95a21, Universite Aix-Marseille III.
Chihiro Shimizu & Kiyohiko G. Nishimura & Yasushi Asami, 2003. "Measuring the Cost of Imperfect Information in the Tokyo Housing Market," CIRJE F-Series CIRJE-F-238, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
François Ortalo-Magné & Sven Rady, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Papers 50, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
Other versions:
- Ortalo-Magné, François & Rady, Sven, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CEPR Discussion Papers 3015, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research. [Downloadable!]
- Francois Ortalo-Magne & Sven Rady, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
- Rady, Sven & Ortalo-Magné, François, 2001. "Housing Market Dynamics," Discussion Papers in Economics 20, University of Munich, Department of Economics. [Downloadable!]
- Sven Rady, 2001. "Housing Market Dynamics: on the Contribution of Income Shocks and Credit Constraints," FMG Discussion Papers dp375, Financial Markets Group. [Downloadable!] (restricted)
- FRANÇOIS ORTALO-MAGNÉ & SVEN RADY, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Review of Economic Studies, Blackwell Publishing, vol. 73(2), pages 459-485, 04. [Downloadable!] (restricted)
John Krainer, 1999. "Real estate liquidity," Economic Review, Federal Reserve Bank of San Francisco, pages 14-26. [Downloadable!]
Peter Englund & Ake Gunnelin & Patric H. Hendershott & Bo Soderberg, 2005. "Adjustment in Property Space Markets: Estimates from the Stockholm Office Market," NBER Working Papers 11345, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Li Gan & Qinghua Zhang, 2006. "The Thick Market Effect on Housing Markets Transactions," NBER Working Papers 12134, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Edward L. Glaeser, 1996. "The Social Costs of Rent Control Revisited," NBER Working Papers 5441, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Edward L. Glaeser, 1996. "The Social Costs of Rent Control Revisted," Harvard Institute of Economic Research Working Papers 1747, Harvard - Institute of Economic Research.

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