Shrinking housing market, long-term vacancy, and withdrawal from housing market

Although a substantial number of houses in shrinking societies face long-term vacancy and ownership abandonment, previous literature on housing market structures has independently modelled illiquid status due to temporary decline in demand, implicitly assuming that all potential sellers try to sell in the market. This paper proposes a unified framework for the process of housing market shrinkage, in which long-term vacancy is followed by market withdrawal. Our simple model of a distressed housing market indicates that the market can seem “liquid” even though the demand is actually small: only forced sellers who need to dispose of their properties quickly will try to sell at low prices; whereas, the buyer–seller ratio in the market becomes sizable in equilibrium. This implies a need to capture the degree of sellers’ exits to understand the microstructure of remaining housing markets.