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Winners and Losers in Housing Markets

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  • Nobuhiro Kiyotaki
  • Alexander Michaelides
  • Kalin Nikolov
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    Abstract

    This paper is a quantitatively-oriented theoretical study into the interaction between housing prices, aggregate production, and household behaviour over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial structures. We find that, in an economy where the share of land in the value of structures is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing large redistribution effects between net buyers and net sellers of houses. Changing the financing constraint, however, has limited effects on housing prices.

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    File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/cp0705.pdf
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    Bibliographic Info

    Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0705.

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    Date of creation: Nov 2007
    Date of revision:
    Handle: RePEc:san:cdmacp:0705

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    Web page: http://www.st-andrews.ac.uk/cdma
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    Related research

    Keywords: Real estates; Land; Housing Prices; Life cycle; Collateral constraints.;

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    References

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    1. Raymond W. Goldsmith, 1962. "The National Wealth of the United States in the Postwar Period," NBER Books, National Bureau of Economic Research, Inc, number gold62-1, July.
    2. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
    3. Antonia Díaz & Maria Jose Luengo-Prado, 2006. "The Wealth Distribution With Durable Goods," Economics Working Papers we067027, Universidad Carlos III, Departamento de Economía.
    4. Harold L Cole & Narayana Kocherlakota, 2010. "Efficient Allocations with Hidden Income and Hidden Storage," Levine's Working Paper Archive 1909, David K. Levine.
    5. Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000. "Consumption Over the Life-Cycle," CEPR Discussion Papers 2345, C.E.P.R. Discussion Papers.
    6. Morris A. Davis & Jonathan Heathcote, 2005. "Housing And The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 751-784, 08.
    7. James A. Kahn, 2007. "Housing Prices and Growth," 2007 Meeting Papers 871, Society for Economic Dynamics.
    8. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
    9. William J.Collins & Robert A. Margo, 2000. "Race and Home Ownership: A Century-Long View," Vanderbilt University Department of Economics Working Papers 0012, Vanderbilt University Department of Economics.
    10. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    11. Gertler, Mark, 1999. "Government debt and social security in a life-cycle economy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 61-110, June.
    12. Haughwout, Andrew F. & Inman, Robert P., 2001. "Fiscal policies in open cities with firms and households," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 147-180, April.
    13. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
    14. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
    15. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    16. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
    17. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Accounting for changes in the homeownership rate," Working Paper 2007-21, Federal Reserve Bank of Atlanta.
    18. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
    19. Pedro Silos, 2005. "Housing, portfolio choice, and the macroeconomy," Working Paper 2005-21, Federal Reserve Bank of Atlanta.
    20. Fran�ois Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 459-485.
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    Cited by:
    1. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative macroeconomics with heterogeneous households," Staff Report 420, Federal Reserve Bank of Minneapolis.
    2. Gete, Pedro, 2009. "Housing Markets and Current Account Dynamics," MPRA Paper 20957, University Library of Munich, Germany, revised 24 Feb 2010.
    3. Jonas D. M. Fisher & Martin Gervais, 2009. "Why has home ownership fallen among the young?," IFS Working Papers W09/08, Institute for Fiscal Studies.
    4. Kaiji Chen, 2010. "A Life-Cycle Analysis of Social Security with Housing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 597-615, July.
    5. Óscar Arce & David López-Salido, 2011. "Housing Bubbles," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 212-41, January.
    6. James A. Kahn, 2008. "What drives housing prices?," Staff Reports 345, Federal Reserve Bank of New York.
    7. Wenli Li & Haiyong Liu & Rui Yao, 2009. "Housing over time and over the life cycle: a structural estimation," Working Papers 09-7, Federal Reserve Bank of Philadelphia.
    8. Andreas Hornstein, 2009. "Problems for a fundamental theory of house prices," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-24.
    9. Davis, Morris A., 2009. "The price and quantity of land by legal form of organization in the United States," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 350-359, May.

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