Das House-Kapital: A Theory of Wealth-to-Income Ratios
Thomas Steger () and
Volker Grossmann ()
VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association
This paper presents a novel dynamic general equilibrium model to examine the evolution of two major wealth-to-income ratios - housing wealth and non-residential wealth - in advanced countries since WWII. Our theory rests on three premises: (1) the overall land endowment is fixed; (2) the production of new houses requires land as an essential input; (3) land employed for real estate development must be permanently withdrawn from alternative uses. The model distinguishes, for the first time, between the extensive and the intensive margin of housing production. The calibrated model replicates the post WWII increase in the two major wealth-to-income ratios. It also suggests a moderate further increase in wealth-to-income ratios that is associated with a considerable future surge in land prices and house prices. Higher population density and technological progress do, however, not affect long run wealth-to-income ratios. The model also accounts for the close connection of house prices to land prices in the data.
JEL-codes: E10 E20 O40 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145936
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