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Household consumption, financial constraints, and size structure of rent

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  • Lee, Hyun-Tak
  • Jang, Bong-Gyu
  • Roh, Kum-Hwan
  • Shin, Yong Hyun

Abstract

This paper examines how financial constraints shape household consumption and housing choices in rental markets with a non-linear price structure. We show that increases in the elasticity magnitude generate asymmetric behavioral responses. Heightened background risk uniformly lowers consumption across households. Housing responses diverge: financially unconstrained households expand to capture stronger economies of scale (price signal), whereas constrained households downsize to avoid amplified penalties for suboptimal choices (structural signal). This mechanism identifies the market’s price structure as a driver of welfare inequality. Policies that reduce the elasticity magnitude and thereby linearize rents raise aggregate welfare and compress disparities by easing structural penalties that bind constrained households.

Suggested Citation

  • Lee, Hyun-Tak & Jang, Bong-Gyu & Roh, Kum-Hwan & Shin, Yong Hyun, 2026. "Household consumption, financial constraints, and size structure of rent," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s1544612325024250
    DOI: 10.1016/j.frl.2025.109176
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    References listed on IDEAS

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