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Do rising tides lift all prices? Income inequality and housing affordability

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  • Matlack, Janna L.
  • Vigdor, Jacob L.

Abstract

Simple partial equilibrium models suggest that income increases at the high end of the distribution can raise prices paid by those at the low end of the income distribution. This prediction does not universally hold in a general equilibrium model, or in models where the rich and poor consume distinct products. We use Census microdata to evaluate these predictions empirically, using data on housing markets in American metropolitan areas between 1970 and 2000. In markets with low-vacancy rates, increases in income at the high end of the distribution are associated with significantly higher rents per room and greater crowding among households headed by a high school dropout. Similar effects are not observed in markets with above-average vacancy rates.

Suggested Citation

  • Matlack, Janna L. & Vigdor, Jacob L., 2008. "Do rising tides lift all prices? Income inequality and housing affordability," Journal of Housing Economics, Elsevier, vol. 17(3), pages 212-224, September.
  • Handle: RePEc:eee:jhouse:v:17:y:2008:i:3:p:212-224
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    Cited by:

    1. Randall Akee & Maggie R. Jones & Sonya R. Porter, 2017. "Race Matters: Income Shares, Income Inequality, and Income Mobility for All U.S. Races," NBER Working Papers 23733, National Bureau of Economic Research, Inc.
    2. David Albouy & Mike Zabek, 2016. "Housing Inequality," NBER Working Papers 21916, National Bureau of Economic Research, Inc.
    3. Gregory J. Colman & Dahlia K. Remler, 2008. "Vertical equity consequences of very high cigarette tax increases: If the poor are the ones smoking, how could cigarette tax increases be progressive?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 376-400.
    4. Caroline Dewilde, 2011. "GINI DP 18: The interplay between economic inequality trends and housing regime changes in advanced welfare democracies," GINI Discussion Papers 18, AIAS, Amsterdam Institute for Advanced Labour Studies.
    5. Zhang, Chuanchuan & Jia, Shen & Yang, Rudai, 2016. "Housing affordability and housing vacancy in China: The role of income inequality," Journal of Housing Economics, Elsevier, vol. 33(C), pages 4-14.
    6. Marianne Bertrand & Adair Morse, 2016. "Trickle-Down Consumption," The Review of Economics and Statistics, MIT Press, vol. 98(5), pages 863-879, December.
    7. Sholeh A. Maani & Rhema Vaithianathan & Barbara Wolfe, 2006. "Inequality and Health: Is Housing Crowding the Link?," Working Papers 06_09, Motu Economic and Public Policy Research.
    8. repec:eee:touman:v:62:y:2017:i:c:p:253-263 is not listed on IDEAS
    9. Joachim Möller, 2009. "Regional variations in the price of building land: a spatial econometrics approach for West Germany," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 113-132, March.
    10. Zhang, Chuanchuan, 2015. "Income inequality and access to housing: Evidence from China," China Economic Review, Elsevier, vol. 36(C), pages 261-271.

    More about this item

    Keywords

    Rent Crowding Low-income;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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