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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. Financial Markets Group Discussion Papers (432). Financial Markets Group, The 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.ac.uk
Additional Information: © 2002 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
JEL classification: 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
Date Deposited: 28 Aug 2009 09:16
Last Modified: 15 Sep 2023 22:52
URI: http://eprints.lse.ac.uk/id/eprint/24952

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