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Household Expenditures, Wages, Rents

Author

Listed:
  • Morris A. Davis

    (University of Wisconsin-Madison)

  • Francois Ortalo-Magne

    (University of Wisconsin-Madison)

Abstract

New evidence from the 1980, 1990, and 2000 Decennial Census of Housing indicates that expenditure shares on housing are constant over time and across U.S. metropolitan statistical areas (MSA). Consistent with this observation, we consider a model in which identical households with Cobb-Douglas preferences for housing and non-housing consumption choose a location and locations differ with respect to income earned by their residents. The model predicts that the relative price of housing of any two MSAs disproportionately reflects differences in incomes of those MSAs and is independent of housing supply in each MSA. According to the predictions of our calibrated model, the dispersion of rental prices across low- and high- wage MSAs should be larger than we observe: High-wage MSAs like San Francisco are puzzlingly inexpensive relative to low-wage MSAs like Pittsburgh. (Copyright: Elsevier)

Suggested Citation

  • Morris A. Davis & Francois Ortalo-Magne, 2011. "Household Expenditures, Wages, Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 248-261, April.
  • Handle: RePEc:red:issued:09-92
    DOI: 10.1016/j.red.2009.12.003
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Housing expenditures; Expenditure shares; Cobb-Douglas preferences; Multi-city models;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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