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Heterogeneity, Frictional Assignment, And Home‐Ownership

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  • Allen Head
  • Huw Lloyd‐Ellis
  • Derek Stacey

Abstract

We study the composition of the housing stock across ownership and rental markets in a dynamic model of frictional assignment. Houses are rented or sold to heterogeneous households that sort over quality. Due to matching frictions and an increasing ownership surplus, wealthy households tend to own and lower value housing tends to be rented, even without financial frictions or rental supply constraints. When calibrated to match key housing market features of the average U.S. city, the model is consistent with observed empirical relationships across cities. We study the model's implications for affordability, ownership, and the impact of progressive property taxation.

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  • Allen Head & Huw Lloyd‐Ellis & Derek Stacey, 2023. "Heterogeneity, Frictional Assignment, And Home‐Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 1265-1308, August.
    • Handle: RePEc:wly:iecrev:v:64:y:2023:i:3:p:1265-1308
    DOI: 10.1111/iere.12624
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    1. Randall Wright & Philipp Kircher & Benoit Julîen & Veronica Guerrieri, 2017. "Directed Search: A Guided Tour," NBER Working Papers 23884, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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