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Heterogeneity within communities: A stochastic model with tenure choice

Author

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  • Ortalo-Magné, François
  • Rady, Sven
Abstract
Standard explanations for the observed income heterogeneity within US communities rely on heterogeneity of the housing stock and differences of preferences across households. We propose a dynamic stochastic model of location and tenure choice where homes are identical within locations and households initially differ according to income only. The model highlights how differences in the timing of moves generate income heterogeneity across homeowners, in particular within communities that experience strong positive demand shocks. Using US Census data, we provide evidence of the relevance of this income mixing mechanism. Our empirical findings suggest that incorporating information on time since moved and tenure choice may be useful in the estimation of equilibrium sorting models and of households' willingness to pay for local amenities, especially so in communities with a history of strong housing price growth.

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  • Ortalo-Magné, François & Rady, Sven, 2008. "Heterogeneity within communities: A stochastic model with tenure choice," Journal of Urban Economics, Elsevier, vol. 64(1), pages 1-17, July.
    • Handle: RePEc:eee:juecon:v:64:y:2008:i:1:p:1-17
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    Cited by:

    1. Basant K. Kapur, 2016. "Another Look At Price Instability And Consumer Well-Being: Nondurable And Durable (Housing) Markets," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-9, June.
    2. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," NBER Working Papers 17250, National Bureau of Economic Research, Inc.
    3. Haavio, Markus & Kauppi, Heikki, 2009. "House price fluctuations and residential sorting," Research Discussion Papers 14/2009, Bank of Finland.
    4. Pablo Casas-Arce & Albert Saiz, 2006. "Owning versus leasing: do courts matter?," Working Papers 06-21, Federal Reserve Bank of Philadelphia.
    5. François Ortalo-Magné & Andrea Prat, 2005. "The Political Economy of Housing Supply," Levine's Bibliography 122247000000000954, UCLA Department of Economics.
    6. Haavio, Markus & Kauppi, Heikki, 2009. "House price fluctuations and residential sorting," Bank of Finland Research Discussion Papers 14/2009, Bank of Finland.
    7. Charles Ka Yui LEUNG, 2022. "Housing and Macroeconomics," ISER Discussion Paper 1197, Institute of Social and Economic Research, Osaka University.
    8. Fran?ois Ortalo-Magn? & Andrea Prat, 2014. "On the Political Economy of Urban Growth: Homeownership versus Affordability," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 154-181, February.
    9. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.
    10. Francois Ortalo-Magne & Andrea Prat, 2007. "The Political Economy of Housing Supply:Homeowners, Workers, and Voters," STICERD - Theoretical Economics Paper Series 514, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    11. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-199, November.
    12. Morrison, Nicola & Szumilo, Nikodem, 2019. "Universities’ global research ambitions and their localised effects," Land Use Policy, Elsevier, vol. 85(C), pages 290-301.
    13. Todd Sinai, 2010. "Feedback Between Real Estate And Urban Economics," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 423-448, February.
    14. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2016. "A Dynamic Model of Demand for Houses and Neighborhoods," Econometrica, Econometric Society, vol. 84, pages 893-942, May.
    15. Hilber, Christian A.L. & Liu, Yingchun, 2008. "Explaining the black-white homeownership gap: The role of own wealth, parental externalities and locational preferences," Journal of Housing Economics, Elsevier, vol. 17(2), pages 152-174, June.
    16. repec:zbw:bofrdp:2009_014 is not listed on IDEAS
    17. Markus Haavio & Heikki Kauppi, 2006. "House price fluctuations and residential sorting," 2006 Meeting Papers 774, Society for Economic Dynamics.
    18. Dokow, Elad & Luque, Jaime, 2019. "Provision of local public goods in mixed income communities," Journal of Housing Economics, Elsevier, vol. 45(C), pages 1-1.
    19. Charles Ka Yui Leung, 2015. "Availability, Affordability and Volatility: The Case of the Hong Kong Housing Market," International Real Estate Review, Global Social Science Institute, vol. 18(3), pages 383-428.
    20. Ko, Kate, 2009. "Home Prices and Urban Corridors," 50th Annual Transportation Research Forum, Portland, Oregon, March 16-18, 2009 207607, Transportation Research Forum.

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    More about this item

    Keywords

    Equilibrium sorting Income mixing Housing demand Tenure choice;

    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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