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Why Has House Price Dispersion Gone Up?

  • Stijn Van Nieuwerburgh
  • Pierre-Olivier Weill

We set up and solve a spatial, dynamic equilibrium model of the housing market based on two main assumptions: households with heterogenous abilities flow in and out metropolitan areas in response to local wage shocks, and the housing supply cannot adjust instantly because of regulatory constraints. In our equilibrium, house prices compensate for cross-sectional productivity differences. We increase productivity dispersion in the calibrated model in order to match the 30-year increase in cross-sectional wage dispersion that we document based on metropolitan-level data. We show that the model quantitatively matches the observed 30-year increase in dispersion of house prices across US metropolitan areas. It is consistent with several other features of the cross-sectional distribution of house prices and wages. Copyright , Wiley-Blackwell.

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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 77 (2010)
Issue (Month): 4 ()
Pages: 1567-1606

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Handle: RePEc:oup:restud:v:77:y:2010:i:4:p:1567-1606
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  1. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
  2. Hanno Lustig & Stijn Van Nieuwerburgh, 2006. "Can Housing Collateral Explain Long-Run Swings in Asset Returns?," NBER Working Papers 12766, National Bureau of Economic Research, Inc.
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