Homeownership: Low Household Mobility, Volatile Housing Prices, High Income Dispersion

35 Pages Posted: 14 Jan 2003

See all articles by François Ortalo-Magné

François Ortalo-Magné

Wisconsin School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Sven Rady

University of Bonn

Date Written: December 2002

Abstract

We develop a dynamic stochastic equilibrium model of two locations within a city where heterogeneous households make joint location and tenure mode decisions. To investigate the effect of homeownership on equilibrium prices and allocations, we compare the response of this model economy to a labor shock with that of a rental-only version. This comparison yields three results. First, homeownership enables more households to remain in the more desirable location at the expense of newcomers. Second, homeownership adds to the volatility of the housing market. Third, homeownership may amplify the dispersion of household income within a location. Homeownership raises distributional issues. The households who consume the most housing gain the most from the ability to own their home. Newcomers to the city are the main losers.

JEL Classification: D11, D31, D58, R21, R23

Suggested Citation

Ortalo-Magne, Francois and Rady, Sven, Homeownership: Low Household Mobility, Volatile Housing Prices, High Income Dispersion (December 2002). CESifo Working Paper Series No. 823. Available at SSRN: https://ssrn.com/abstract=367176

Francois Ortalo-Magne

Wisconsin School of Business ( email )

4300 Grainger Hall
975 University Avenue
Madison, WI 53706-1323
United States
608-262-7867 (Phone)
608-262-7867 (Fax)

HOME PAGE: http://francois.marginalq.com

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Sven Rady (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

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