Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104092
Authors: 
Rady, Sven
Ortalo-Magné, François
Year of Publication: 
2002
Series/Report no.: 
Munich Discussion Paper 2002-10
Abstract: 
We develop a dynamic stochastic equilibrium model of two locations within a city where heterogeneous households make joint location and tenure mode decisions. To investigate the effect of homeownership on equilibrium prices and allocations, we compare the response of this model economy to a labor shock with that of a rental-only version. This comparison yields three results. First, homeownership enables more households to remain in the more desirable location at the expense of newcomers. Second, homeownership adds to the volatility of the housing market. Third, homeownership may amplify the dispersion of household income within a location. Homeownership raises distributional issues. The households who consume the most housing gain the most from the ability to own their home. Newcomers to the city are the main losers.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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