IDEAS home Printed from https://ideas.repec.org/p/qed/wpaper/1396.html
   My bibliography  Save this paper

Heterogeneity, Frictional Assignment And Home-ownership

Author

Listed:
  • Allen Head

    (Queen's University)

  • Huw Lloyd-Ellis

    (Queen's University)

  • Derek G. Stacey

    (University of Waterloo)

Abstract

We study the long-run composition of the housing stock across city-level ownership and rental markets in a dynamic equilibrium model of frictional assignment. Newly constructed and existing houses may be rented or sold to heterogeneous households that sort over housing quality. Due to the endogenous interaction between matching frictions and an ownership surplus that rises with quality, more housing is offered for sale per buyer in higher quality segments. Consequently, even in the absence of financial frictions and constraints on which houses can be rented, higher income households are more likely to own and lower quality housing is more likely to be rented. When calibrated to match key features of housing markets in the average U.S. city, the model is qualitatively consistent with observed cross-city relationships between underlying determinants and key market outcomes. We study the implications of the model for affordability and ownership across cities and for the impact of progressive property taxes and other affordable housing policies.

Suggested Citation

  • Allen Head & Huw Lloyd-Ellis & Derek G. Stacey, 2021. "Heterogeneity, Frictional Assignment And Home-ownership," Working Paper 1396, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:1396
    as

    Download full text from publisher

    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/wpaper/qed_wp_1396.pdf
    File Function: First version 2021
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Albouy & Gabriel Ehrlich & Minchul Shin, 2018. "Metropolitan Land Values," The Review of Economics and Statistics, MIT Press, vol. 100(3), pages 454-466, July.
    2. Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "The housing stock, housing prices, and user costs: the roles of location, structure and unobserved quality," CeMMAP working papers CWP73/15, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    3. Shouyong Shi, 1998. "Frictional Assignment," Working Paper 988, Economics Department, Queen's University.
    4. repec:hal:spmain:info:hdl:2441/4dp533k0lq8dgrbgue1eid6mk1 is not listed on IDEAS
    5. Garner, Thesia I. & Verbrugge, Randal, 2009. "Reconciling user costs and rental equivalence: Evidence from the US consumer expenditure survey," Journal of Housing Economics, Elsevier, vol. 18(3), pages 172-192, September.
    6. Jonathan Halket & Lars Nesheim & Florian Oswald, 2020. "The Housing Stock, Housing Prices, And User Costs: The Roles Of Location, Structure, And Unobserved Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1777-1814, November.
    7. L Rachel Ngai & Kevin D Sheedy, 2020. "The Decision to Move House and Aggregate Housing-Market Dynamics [Opportunistic Matching in the Housing Market]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2487-2531.
    8. Hill, Robert J. & Syed, Iqbal A., 2016. "Hedonic price–rent ratios, user cost, and departures from equilibrium in the housing market," Regional Science and Urban Economics, Elsevier, vol. 56(C), pages 60-72.
    9. Philippe Bracke, 2015. "House Prices and Rents: Microevidence from a Matched Data Set in Central London," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 403-431, June.
    10. Aaron Hedlund, 2014. "The Cyclical Dynamics of Illiquid Housing, Debt, and Foreclosures," Working Papers 1416, Department of Economics, University of Missouri.
    11. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
    12. David Albouy, 2016. "What Are Cities Worth? Land Rents, Local Productivity, and the Total Value of Amenities," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 477-487, July.
    13. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2014. "Search, Liquidity, and the Dynamics of House Prices and Construction," American Economic Review, American Economic Association, vol. 104(4), pages 1172-1210, April.
    14. Edward L. Glaeser & Joseph Gyourko, 2007. "Arbitrage in Housing Markets," NBER Working Papers 13704, National Bureau of Economic Research, Inc.
    15. 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.
    16. Shouyong Shi, 2005. "Frictional Assignment, Part II: Infinite Horizon and Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 106-137, January.
    17. Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "The housing stock, housing prices, and user costs," SciencePo Working papers Main hal-03393224, HAL.
    18. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    19. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
    20. Margaret Stevens, 2007. "New Microfoundations For The Aggregate Matching Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 847-868, August.
    21. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
    22. Glaeser, Edward L. & Gyourko, Joseph & Morales, Eduardo & Nathanson, Charles G., 2014. "Housing dynamics: An urban approach," Journal of Urban Economics, Elsevier, vol. 81(C), pages 45-56.
    23. Halket, Jonathan & Pignatti Morano di Custoza, Matteo, 2015. "Homeownership and the scarcity of rentals," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 107-123.
    24. James Albrecht & Axel Anderson & Eric Smith & Susan Vroman, 2007. "Opportunistic Matching In The Housing Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 641-664, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabrovski, Miroslav & Ortego-Marti, Victor, 2021. "Search and credit frictions in the housing market," European Economic Review, Elsevier, vol. 134(C).
    2. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2016. "Search, Liquidity, and the Dynamics of House Prices and Construction: Corrigendum," American Economic Review, American Economic Association, vol. 106(4), pages 1214-1219, April.
    3. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    4. Eric Smith, 2020. "High and Low Activity Spells in Housing Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 1-28, April.
    5. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2014. "Search, Liquidity, and the Dynamics of House Prices and Construction," American Economic Review, American Economic Association, vol. 104(4), pages 1172-1210, April.
    6. Daisy J. Huang & Charles Ka Yui Leung & Chung-Yi Tse, 2018. "What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 431-475, October.
    7. Robert J. Hill & Miriam Steurer & Sofie R. Waltl, 2019. "Owner-Occupied Housing, Inflation, and Monetary Policy," Graz Economics Papers 2019-05, University of Graz, Department of Economics.
    8. Alina Arefeva, 2016. "How Auctions Amplify House-Price Fluctuations," 2016 Meeting Papers 714, Society for Economic Dynamics.
    9. Robert J. Hill & Miriam Steurer & Sofie R. Waltl, 2017. "Owner Occupied Housing in the CPI and Its Impact On Monetary Policy During Housing Booms and Busts," Graz Economics Papers 2017-12, University of Graz, Department of Economics.
    10. Andrew Demers & Andrea L. Eisfeldt, 2022. "Total returns to single‐family rentals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(1), pages 7-32, March.
    11. Leung, Charles Ka Yui & Ng, Joe Cho Yiu, 2018. "Macro Aspects of Housing," MPRA Paper 93512, University Library of Munich, Germany.
    12. Carlos Garriga & Aaron Hedlund, 2019. "Crises in the Housing Market: Causes, Consequences, and Policy Lessons," Working Papers 2019-33, Federal Reserve Bank of St. Louis.
    13. Lei Fang & Eric Smith & Zoe Xie, 2022. "The Short and the Long of It: Stock-Flow Matching in the US Housing Market," FRB Atlanta Working Paper 2022-15, Federal Reserve Bank of Atlanta.
    14. Baye, Vera & Dinger, Valeriya, 2022. "Investment Incentives of Rent Controls and Gentrification - Evidence from German Micro Data," VfS Annual Conference 2022 (Basel): Big Data in Economics 264120, Verein für Socialpolitik / German Economic Association.
    15. Gabrovski, Miroslav & Ortego-Marti, Victor, 2019. "The cyclical behavior of the Beveridge Curve in the housing market," Journal of Economic Theory, Elsevier, vol. 181(C), pages 361-381.
    16. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 837-872, August.
    17. Espen R Moen & Plamen T Nenov & Florian Sniekers, 2021. "Buying First or Selling First in Housing Markets," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 38-81.
    18. Hongfei Sun & Chenggang Zhou & Allen Head, 2016. "Default, Mortgage Standards, and Housing Liquidity," 2016 Meeting Papers 625, Society for Economic Dynamics.
    19. Adam M Guren & Timothy J McQuade, 2020. "How Do Foreclosures Exacerbate Housing Downturns?," Review of Economic Studies, Oxford University Press, vol. 87(3), pages 1331-1364.
    20. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.

    More about this item

    Keywords

    income inequality; House prices; liquidity; search;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:qed:wpaper:1396. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Babcock (email available below). General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.