Heterogeneity, Frictional Assignment And Home-ownership

Allen Head (), Huw Lloyd-Ellis and Derek Stacey

No 1396, Working Paper from Economics Department, Queen's University

Abstract: We study the long-run composition of the housing stock across city-level ownership and rental markets in a dynamic equilibrium model of frictional assignment. Newly constructed and existing houses may be rented or sold to heterogeneous households that sort over housing quality. Due to the endogenous interaction between matching frictions and an ownership surplus that rises with quality, more housing is offered for sale per buyer in higher quality segments. Consequently, even in the absence of financial frictions and constraints on which houses can be rented, higher income households are more likely to own and lower quality housing is more likely to be rented. When calibrated to match key features of housing markets in the average U.S. city, the model is qualitatively consistent with observed cross-city relationships between underlying determinants and key market outcomes. We study the implications of the model for affordability and ownership across cities and for the impact of progressive property taxes and other affordable housing policies.

Keywords: income inequality; House prices; liquidity; search (search for similar items in EconPapers)
JEL-codes: E30 R10 R31 (search for similar items in EconPapers)
Pages: 90 pages
Date: 2021-08
New Economics Papers: this item is included in nep-mac and nep-ure
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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/wpaper/qed_wp_1396.pdf First version 2021 (application/pdf)

Related works:
Journal Article: HETEROGENEITY, FRICTIONAL ASSIGNMENT, AND HOME‐OWNERSHIP (2023)
Working Paper: Heterogeneity, Frictional Assignment and Home-Ownership (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1396

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