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Homeownership: Low household mobility, volatile housing prices, high income dispersion

We develop a dynamic stochastic equilibrium model of two locations within a city where heterogeneous households make joint location and tenure mode decisions. To investigate the effect of homeownership on equilibrium prices and allocations, we compare the response of this model economy to a labor shock with that of a rental-only version. This comparison yields three results. First, homeownership enables more households to remain in the more desirable location at the expense of newcomers. Second, homeownership adds to the volatility of the housing market. Third, homeownership may amplify the dispersion of household income within a location. Homeownership raises distributional issues.� The households who consume the most housing gain the most from the ability to own their home. Newcomers to the city are the main losers.

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File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP432.pdf
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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp432.

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Date of creation: Dec 2002
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Handle: RePEc:fmg:fmgdps:dp432
Contact details of provider: Web page: http://www.lse.ac.uk/fmg/

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  1. Hilber, Christian A.L., 2005. "Neighborhood externality risk and the homeownership status of properties," Journal of Urban Economics, Elsevier, vol. 57(2), pages 213-241, March.
  2. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  3. Ioannides, Yannis M. & Seslen, Tracey N., 2002. "Neighborhood wealth distributions," Economics Letters, Elsevier, vol. 76(3), pages 357-367, August.
  4. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  5. Chiuri, Maria Concetta & Jappelli, Tullio, 2003. "Financial market imperfections and home ownership: A comparative study," European Economic Review, Elsevier, vol. 47(5), pages 857-875, October.
  6. Sven Rady, 1998. "Boom In, Bust Out: Young Households and the Housing Price Cycle," FMG Discussion Papers dp310, Financial Markets Group.
  7. Yannis Ioannides, 2001. "Neighborhood Income Distributions," Discussion Papers Series, Department of Economics, Tufts University 0103, Department of Economics, Tufts University.
  8. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
  9. Goodspeed, Timothy J., 1989. "A re-examination of the use of ability to pay taxes by local governments," Journal of Public Economics, Elsevier, vol. 38(3), pages 319-342, April.
  10. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
  11. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
  12. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November.
  13. Epple, Dennis & Platt, Glenn J., 1998. "Equilibrium and Local Redistribution in an Urban Economy when Households Differ in both Preferences and Incomes," Journal of Urban Economics, Elsevier, vol. 43(1), pages 23-51, January.
  14. Markus Haavio and Heikki Kauppi, 2001. "Housing Markets, Liquidity Constraints and Labor Mobility," Computing in Economics and Finance 2001 186, Society for Computational Economics.
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