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Why Has House Price Dispersion Gone Up?Stijn Van NieuwerburghNew York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) Pierre-Olivier WeillUniversity of California, Los Angeles; National Bureau of Economic Research (NBER) August 2006 Abstract: We investigate the 30-year increase in the level and dispersion of house prices across U.S. metropolitan areas in a calibrated dynamic general equilibrium island model. The model is based on two main assumptions: households flow in and out of metropolitan areas in response to local wage shocks, and the housing supply cannot adjust instantly because of regulatory constraints. Feeding in our model the 30-year increase in cross-sectional wage dispersion that we document based on metropolitan-level data, we generate the observed increase in house price level and dispersion. In equilibrium, workers flow towards exceptionally productive metropolitan areas and drive house prices up. The calibration also reveals that, while a baseline level of regulation is important, a tightening of regulation by itself cannot account for the increase in house price level and dispersion: in equilibrium, workers flow out of tightly regulated metropolitan areas towards less regulated areas, undoing most of the price impact of additional local supply regulations. Finally, the calibration with increasing wage dispersion suggests that the welfare effects of housing supply regulation are large.
Number of Pages in PDF File: 53 Keywords: house price, income inequality, supply regulation JEL Classification: R13, R21, R31, R52, J61, E60 working papers seriesDate posted: August 10, 2006Suggested CitationContact Information
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