Regional Divergence and House Prices

Greg Howard and Jack Liebersohn
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Jack Liebersohn: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: This paper develops a model of the U.S. housing market that explains much of the time series of rents and house prices since World War II. House prices depend on expec- tations of future rents. We show that rents are tied to regional income inequality, and therefore, house prices are determined by how much faster incomes are growing in richer regions. This theory also matches many cross-sectional facts, including regional varia- tion in rents and prices, differing house price sensitivities to national trends, patterns of inter-state migration, and surveys of income expectations. An industry shift-share instrument provides causal evidence for our channel. The model implies that while interest rates have an ambiguous effect on house price levels, low rates increase house price volatility.

JEL-codes: E22 G12 R31 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-geo, nep-his, nep-mac and nep-ure
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Regional Divergence and House Prices (2023)
Working Paper: What Explains U.S. House Prices? Regional Income Divergence (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2020-04

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