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http://ssrn.com/abstract=1657176
 
 

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Endogenous Gentrification and Housing-Price Dynamics


Veronica Guerrieri


University of Chicago - Booth School of Business

Daniel A. Hartley


Federal Reserve Banks - Federal Reserve Bank of Cleveland

Erik Hurst


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

February 1, 2012

FRB of Cleveland Working Paper No. 10-08R

Abstract:     
In this paper, we begin by documenting substantial variation in house price growth across neighborhoods within a city during citywide housing price booms. We then present a model which links house price movements across neighborhoods within a city and the gentrification of those neighborhoods in response to a citywide housing demand shock. A key ingredient in our model is a positive neighborhood externality: Individuals like to live next to richer neighbors. This generates an equilibrium where households segregate based upon their income. In response to a citywide demand shock, higher-income residents will choose to expand their housing by migrating into the poorer neighborhoods that directly abut the initial richer neighborhoods. The in-migration of the richer residents into these border neighborhoods will bid up prices in those neighborhoods, causing the original poorer residents to migrate out. We refer to this process as “endogenous gentrification.” Using a variety of data sets and using Bartik variation across cities to identify city-level housing demand shocks, we find strong empirical support for the model’s predictions.

Number of Pages in PDF File: 58

Keywords: gentrification, housing price dynamics, housing consumption

JEL Classification: R12, R21, I32

working papers series


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Date posted: August 11, 2010 ; Last revised: April 30, 2013

Suggested Citation

Guerrieri, Veronica and Hartley, Daniel A. and Hurst, Erik, Endogenous Gentrification and Housing-Price Dynamics (February 1, 2012). FRB of Cleveland Working Paper No. 10-08R. Available at SSRN: http://ssrn.com/abstract=1657176 or http://dx.doi.org/10.2139/ssrn.1657176

Contact Information

Veronica Guerrieri (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Daniel A. Hartley
Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )
East 6th & Superior
Cleveland, OH 44101-1387
United States
Erik Hurst
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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