Buying a Home with a Resale Value: Location, Location, Location

38 Pages Posted: 30 Sep 2013

See all articles by Markus Haavio

Markus Haavio

Bank of Finland - Research

Heikki Kauppi

University of Turku - Department of Economics; Bank of Finland - Research; University of Helsinki - Department of Political and Economic Studies

Date Written: October 2013

Abstract

We develop a dynamic multiregion model, where a household's choice of housing location depends on its current wealth and its current type, and involves both consumption and investment considerations. The relative strength of the consumption motive and the investment motive determines the equilibrium pattern of residential sorting. A strong investment (consumption) motive implies sorting according to household type (wealth). The model predicts that large houseā€price fluctuations are associated with a low degree of sorting by type. This prediction is consistent with evidence from US metropolitan areas when income, education, and age are used as proxies for household type.

Keywords: Consumption motive, household mobility, house prices, incomplete markets, investment motive, residential sorting

JEL Classification: D31, D52, G11, R12, R21, R23

Suggested Citation

Haavio, Markus and Kauppi, Heikki, Buying a Home with a Resale Value: Location, Location, Location (October 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 4, pp. 1046-1083, 2013, Available at SSRN: https://ssrn.com/abstract=2332963 or http://dx.doi.org/10.1111/sjoe.12033

Markus Haavio (Contact Author)

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Heikki Kauppi

University of Turku - Department of Economics ( email )

20014 Turku
Finland

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies

P.O. Box 54
FIN-00014 Helsinki
Finland

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