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Title:Dynamic housing expenditures and household welfare PDF Logo
Authors:Blow, Laura
Nesheim, Lars
Issue Date:2009
Series/Report no.:cemmap working paper CWP04/09
Abstract:In this paper we develop a measure of current expenditures on housing services for owner-occupiers. Having such a measure is important for measuring the relative welfare of households, especially when comparing renters and owners and for measuring inflation. From a theoretical perspective expenditures equal the shadow price of housing services (the marginal rate of substitution between housing services and non-durable consumption) multiplied by the quantity of housing services consumed. In an idealised world, two simple measures of the shadow price are available; the user cost of housing capital and the rental price of an equivalent rental house. However, imperfect capital markets, risk aversion, the tax system, moving costs and systematic differences between houses available in the rental and owner occupied sectors drive a wedge between the shadow price of housing and these other two measures. This paper contributes to previous research by calibrating a lifecycle model of housing investment and consumption to data from the UK Family Expenditure Survey and by developing measures of the shadow price of housing that take into account uncertainty in house prices, interest rates and incomes, dynamic life cycle choices, and liquidity constraints that depend on both income and house value.
Subjects:shadow price
housing
liquidity constraints
lifeycle models
JEL:C88
D12
E21
R21
Persistent Identifier of the first edition:doi:10.1920/wp.cem.2009.0409
Document Type:Working Paper
Appears in Collections:cemmap working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies (IFS)

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