Out-of-town Home Buyers and City Welfare

Stijn Van Nieuwerburgh and Jack Favilukis

No 486, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: The major cities of the world have attracted a flurry of interest from out-of-town (OOT) home buyers. Such capital inflows in local real estate have implications for affordability through their effects on prices and rents, but also for construction, local labor markets, the spatial distribution of residents, and ultimately economic welfare. We develop a spatial equilibrium model of a city that features heterogeneous households that make optimal decisions on consumption, savings, labor supply, tenure status, and location. The model generates realistic wealth accumulation and home ownership patterns over the life-cycle and in the cross-section. An inflow of OOT real estate buyers pushes up prices, rents, and wages. It increases the concentration of young, high-productivity, and wealthy households in the city center (gentrification). When OOT investors buy 10% of the housing stock, city welfare goes down by 0.3% of permanent consumption levels. The average renter suffers a large welfare loss while the average owner gains modestly. We adapt the model to the New York metro area, obtain detailed data on OOT purchases, and find that the observed increase in OOT purchases is associated with a 0.1% welfare loss.

Date: 2017
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2017/paper_486.pdf (application/pdf)

Related works:
Journal Article: Out‐of‐Town Home Buyers and City Welfare (2021)
Working Paper: Out-of-town Home Buyers and City Welfare (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:486

Access Statistics for this paper

More papers in 2017 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().