In Search of the Matching Function in the Housing Market

Abstract

We estimate and evaluate the aggregate matching function in the housing market, using comprehensive granular data coupled with a structural framework. In the sales segment of the market, a Cobb-Douglas specification with constant returns to scale finds broad support. In the rental segment, additional congestion effects occur via bilateral bargaining, resulting in decreasing returns to scale. Information beyond market tightness, including pricing strategy and price revisions, helps to predict matches, consistent with an important role for seller optimization. We validate these estimated elasticities by studying search and matching during the 2022 U.K. "mini-budget" natural experiment.

Keywords: housing markets, rental markets, search and matching, returns to scale, pricing strategy

JEL Classification: D83, G50, R20, R21, R30