Heterogeneity within Communities: A Stochastic Model with Tenure Choice

Francois Ortalo-Magne and Sven Rady

No 1465, CESifo Working Paper Series from CESifo

Abstract: Standard explanations for the observed income heterogeneity within communities rely on differences of preferences across households and heterogeneity of the housing stock. We propose a dynamic stochastic model of location choice where households differ according to income only, and homes are identical within locations. Households choose whether to own or rent their home motivated by concerns over housing expenditure risk. The model highlights how differences in the timing of moves generate income heterogeneity across homeowners within neighborhoods, in particular in cities that experience strong positive demand shocks. US Census data provides evidence in favor of the income mixing mechanism we identify. In communities that have experienced strong price growth, the heterogeneity of homeowners’ incomes is positively correlated with the heterogeneity of the times since they bought their homes. Homeowners who moved in more recently earn higher incomes than homeowners who bought earlier, more so in cities with strong housing price growth. These relationships do not hold for renters.

JEL-codes: D31 R12 R21 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dcm, nep-dge and nep-geo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Heterogeneity within communities: A stochastic model with tenure choice (2008)
Working Paper: Heterogeneity within Communities: A Stochastic Model with Tenure Choice (2005)
Working Paper: Heterogeneity within Communities: A Stochastic Model with Tenure Choice (2005)
Working Paper: Heterogeneity within Communities: A Stochastic Model with Tenure Choice (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1465

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