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Income distribution and housing prices: An assignment model approach

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  • Määttänen, Niku
  • Terviö, Marko

Abstract

We present a framework for studying the relation between the distributions of income and house prices that is based on an assignment model where households are heterogeneous by incomes and houses by quality. Each household owns one house and wishes to live in one house; thus everyone is potentially both a buyer and a seller. In equilibrium, the distribution of prices depends on both distributions in a tractable but nontrivial manner. We show how the impact of increased income inequality on house prices depends on the shapes of the distributions, and can be inferred from data. In our empirical application we find that increased income inequality between 1998 and 2007 had a negative impact on average house prices in six US metropolitan areas.

Suggested Citation

  • Määttänen, Niku & Terviö, Marko, 2014. "Income distribution and housing prices: An assignment model approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 381-410.
  • Handle: RePEc:eee:jetheo:v:151:y:2014:i:c:p:381-410
    DOI: 10.1016/j.jet.2014.01.003
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    Cited by:

    1. Nicodemo, Catia & Raya, Josep Maria, 2012. "Change in the distribution of house prices across Spanish cities," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 739-748.
    2. Carl Gaigne & Hans R.A. Koster & Fabien Moizeau & Jacques-Francois Thisse, 2017. "Amenities and the Social Structure of Cities," HSE Working papers WP BRP 162/EC/2017, National Research University Higher School of Economics.
    3. Thomas Goda & Chris Stewart & Alejandro Torres García, 2016. "Absolute Income Inequality and Rising House Prices," DOCUMENTOS DE TRABAJO CIEF 015247, UNIVERSIDAD EAFIT.
    4. Karolien De Bruyne & Jan Van Hove, 2013. "Explaining the spatial variation in housing prices: an economic geography approach," Applied Economics, Taylor & Francis Journals, vol. 45(13), pages 1673-1689, May.
    5. Andrea Eisfeldt & Andrew Demers, 2015. "Total Returns to Single Family Rentals," NBER Working Papers 21804, National Bureau of Economic Research, Inc.
    6. Takaaki Ohnishi & Takayuki Mizuno & Chihiro Shimizu & Tsutomu Watanabe, 2012. "Detecting Real Estate Bubbles: A New Approach Based on the Cross-Sectional Dispersion of Property Prices," UTokyo Price Project Working Paper Series 006, University of Tokyo, Graduate School of Economics, revised Apr 2013.
    7. Duranton, Gilles & Puga, Diego, 2015. "Urban Land Use," Handbook of Regional and Urban Economics, Elsevier.
    8. Morten Olsen & Joshua Gottlieb & David Hemous & Jeffrey Clemens, 2017. "The Spill-over Effects of Top Income Inequality," 2017 Meeting Papers 332, Society for Economic Dynamics.

    More about this item

    Keywords

    Assignment models; Housing; Income distribution;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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