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Income Distribution and Housing Prices: An Assignment Model Approach


Niku Määttänen


ETLA, Research Institute of the Finnish Economy

Marko Terviö


Aalto University

April 8, 2011


Abstract:     
We present a framework for studying the relation between the distributions of income and house prices that is based on an assignment model where households are heterogeneous by incomes and houses by quality. Each household owns one house and wishes to live in one house; thus everyone is potentially both a buyer and a seller. The equilibrium distribution of prices depends on both distributions in a tractable but nontrivial manner. We show how the impact of increased inequality on house prices is in principle ambiguous, but can be inferred from data. We estimate the impact of increased income inequality between 1998 and 2007 on the distribution of house prices in 6 US metropolitan regions. We find that the increase in income inequality had a negative impact on average house prices. The impact of uneven income growth on house prices has been positive only within the top decile.

Number of Pages in PDF File: 41

Keywords: housing markets, assignment models, capitalization

JEL Classification: D31, R21

working papers series


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Date posted: April 9, 2011 ; Last revised: April 12, 2011

Suggested Citation

Määttänen, Niku and Terviö, Marko, Income Distribution and Housing Prices: An Assignment Model Approach (April 8, 2011). Available at SSRN: http://ssrn.com/abstract=1805734 or http://dx.doi.org/10.2139/ssrn.1805734

Contact Information

Niku Määttänen
ETLA, Research Institute of the Finnish Economy ( email )
Lonnrotink. 4 B
FIN-00120 Helsinki
Finland
Marko Terviö (Contact Author)
Aalto University ( email )
P.O. Box 21240
Helsinki, 00101
Finland
HOME PAGE: http://hse-econ.fi/tervio
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