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

Ortalo-Magné, François and Rady, Sven (2002) Homeownership: low household mobility, volatile housing prices, high income dispersion. Discussion paper, 432. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

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.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2002 The Authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory
D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R23 - Regional Migration; Regional Labor Markets; Population
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 432
Date Deposited: 28 Aug 2009 09:16
URL: http://eprints.lse.ac.uk/24952/

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