Housing Demand, Cost-of-Living Inequality, and the Affordability Crisis

62 Pages Posted: 14 Nov 2016 Last revised: 20 Nov 2016

See all articles by David Albouy

David Albouy

University of Illinois at Urbana-Champaign

Gabriel Ehrlich

University of Michigan at Ann Arbor

Yingyi Liu

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: November 2016

Abstract

Since 1970, housing's relative price, share of expenditure, and ``unaffordability'' have all grown. We estimate housing demand using a novel compensated framework over space and an uncompensated framework over time. Our specifications pass tests imposed by rationality and household mobility. Housing demand is income and price inelastic, and appears to fall with household size. We provide a numerical non-homothetic constant elasticity of substitution utility function for improved quantitative modeling. An ideal cost-of-living index demonstrates that the poor have been disproportionately impacted by rising relative rents, which have greatly amplified increases in real income inequality.

Suggested Citation

Albouy, David and Ehrlich, Gabriel and Liu, Yingyi, Housing Demand, Cost-of-Living Inequality, and the Affordability Crisis (November 2016). NBER Working Paper No. w22816. Available at SSRN: https://ssrn.com/abstract=2868914

David Albouy (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Gabriel Ehrlich

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

Yingyi Liu

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

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