In Search of the Matching Function in the Housing Market

Abstract

We use granular and comprehensive data from the U.K. housing market to uncover the best functional form for different stages of the matching process (online search, physical meetings, final transactions). A Cobb-Douglas matching function finds broad support for both sale and rental markets, but elasticities and returns to scale differ considerably at different matching stages. Information beyond market tightness, including pricing strategy and price revisions, helps to predict matches, and we estimate significant cross-elasticities between rental and sale markets. We verify and extend these findings by studying search and matching during the 2022 ``mini-budget'' natural experiment.

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

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