In Search of the Matching Function in the Housing Market

68 Pages Posted: 2 Nov 2023 Last revised: 1 Jul 2024

See all articles by Cristian Badarinza

Cristian Badarinza

National University of Singapore (NUS)

Vimal Balasubramaniam

Queen Mary University of London; Centre for Economic Policy Research (CEPR)

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: June 24, 2024

Abstract

The aggregate matching function is at the core of structural search and matching models, but its microfoundations remain elusive. We use granular and comprehensive data from the U.K. housing market to identify individual behavior at different stages of the matching process. In the sales segment of the market, a Cobb-Douglas functional form with constant returns to scale finds broad support, with an estimated demand elasticity between 0.2-0.3. In the rental segment, additional congestion effects occur at the level of bilateral bargaining, which leads to weakly decreasing returns to scale. Motivated by a stylized model of cross-market search, we document a novel source of cross-segment dependence; an increase in rental market tightness has a positive and economically significant impact on the sales transaction probability. We validate these findings 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

Suggested Citation

Badarinza, Cristian and Balasubramaniam, Vimal and Ramadorai, Tarun, In Search of the Matching Function in the Housing Market (June 24, 2024). Available at SSRN: https://ssrn.com/abstract=4594519 or http://dx.doi.org/10.2139/ssrn.4594519

Cristian Badarinza

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Vimal Balasubramaniam

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tarun Ramadorai (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

HOME PAGE: http://www.tarunramadorai.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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