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Income Distribution and Housing Prices: An Assignment Model Approach

41 Pages Posted: 9 Apr 2011 Last revised: 26 May 2015

Niku Määttänen

ETLA, Research Institute of the Finnish Economy

Marko Terviö

Aalto University

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

Keywords: housing markets, assignment models, capitalization

JEL Classification: D31, R21

Suggested Citation

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

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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