House Hedging Model — which income group is more affected by risk?

Eddie C.M. Hui, Jia Chen and Ka Kwan Kevin Chan

Physica A: Statistical Mechanics and its Applications, 2019, vol. 529, issue C

Abstract: This paper investigates the housing market dynamics based on the individual choices of tenants and homeowners. We integrate Han (2008)’s individual homeowners’ transaction choice model with tenants’ housing tenure choice into a single, new model, and take tenants’ and homeowners’ decision into account jointly. As a result, our new model can capture the interaction between the transaction and rental markets and hence is more realistic. The model is applicable to Hong Kong and other countries of which the rental market is a significant proportion of the whole property market. We solve the new model in an analytical way. In addition, we conduct an agent-based simulation on the model. Compared with Han (2008)’s hump-shaped life-cycle paths, our results show that the life-cycle paths are irregular. Nevertheless, the middle-income households are least affected by housing price risk. Moreover, the average Time on Market (TOM) is significantly positively affected by housing vacancy rate under the exogenous price assumption. Finally, the trend of homeownership rate in a relatively closed market is not significantly affected by the specific housing price or rent process. Policy makers can make use of our model to implement more appropriate housing policies to regulate the housing market.

Keywords: Homeowner; Tenant; Housing tenure choice; Dynamic optimization; Agent-based simulation (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037843711930901X
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
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:eee:phsmap:v:529:y:2019:i:c:s037843711930901x

DOI: 10.1016/j.physa.2019.121537

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().