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Heterogeneity, Frictional Assignment And Home-ownership

Author

Listed:
  • Allen Head

    ()

  • Huw Lloyd-Ellis

    () (Queen's University)

  • Derek G. Stacey

    (Queen's University)

Abstract

A model of frictional assignment is developed to study the composition of housing units and households across city-level ownership and rental markets. Heterogeneous houses are built by a competitive development industry and either rented competitively or sold through directed search to households which differ in wealth and sort over housing types. Even in the absence of financial restrictions and constraints on house characteristics, higher income households are more likely to own and lower quality housing is more likely to be rented. When calibrated to match average features of housing markets within U.S. cities, the model is qualitatively consistent with U.S. data on the relationships between observed differences in median income, inequality, median household age, and construction/land costs across cities and both home-ownership and the average cost of owning vs. renting. Policies designed to improve housing affordability raise both housing quality and ownership for lower income households while lowering housing quality (but not ownership) for high income ones.

Suggested Citation

  • Allen Head & Huw Lloyd-Ellis & Derek G. Stacey, 2018. "Heterogeneity, Frictional Assignment And Home-ownership," Working Paper 1396, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1396
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    References listed on IDEAS

    as
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    3. Shouyong Shi, 1998. "Frictional Assignment," Working Paper 988, Economics Department, Queen's University.
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    8. 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.
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    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.

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    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
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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