Sticky Rents and the Stability of Housing Cycles
This paper presents a simple model of housing cycles in a two good economy. We establish that nonsubstitutability between housing services and other commodities along with high degree of heterogeneity in home ownership may lead to a stable spiral path converging to a steady-state equilibrium of rental price and housing stock. Key conditions for stability are a sufficiently sticky rent adjustment dynamics and a relatively rapid depreciation of per capita housing stock.
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0801, TOBB University of Economics and Technology, Department of Economics.
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