Inequality, Frictional Assignment and Home-ownership

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

No 1336, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: Cross-city variation in the rate of home-ownership and the relative costs of renting and owning are studied using a model of frictional assignment. Houses of different types are built by a competitive construction industry and either rented in Walrasian markets or sold through a process of competitive search to households. Households differ with regard to their permanent income and sort over house types and housing tenure at each point in time. Along a balanced growth path, both the composition of the city's housing stock and the rate of home-ownership depend on the distributions of income, construction costs, and housing amenities. In the absence of either financial frictions or minimum house size requirements, higher income households live in better houses and are more likely on average to be homeowners than lower income ones. A calibrated version illustrates the extent to which income/wealth inequality alone can ac- count for variation in home-ownership and the price-rent ratio both within and across cities.

Date: 2017
New Economics Papers: this item is included in nep-dge and nep-ure
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