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The housing cost disease

Nicola Borri and Pietro Reichlin ()

Journal of Economic Dynamics and Control, 2018, vol. 87, issue C, 106-123

Abstract: Using a simple two-sector life cycle economy with housing services and bequests, we show that a rising labor efficiency in the general economy relative to the construction sector can go a long way toward explaining a significant fraction of the rising trends in wealth-to-income ratios, housing wealth, and wealth inequality, that have been documented in most advanced countries at least since the ’70s. This mechanism (which we label housing cost disease) has adverse effects on social welfare when the Planner puts sufficient weight on the less wealthy households.

Keywords: Housing wealth; Cost disease; Overlapping generations; Wealth inequality (search for similar items in EconPapers)
JEL-codes: D91 O11 H2 G1 (search for similar items in EconPapers)
Date: 2018
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Working Paper: The Housing Cost Disease (2015) Downloads
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DOI: 10.1016/j.jedc.2017.12.001

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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