Journal Article

Why Has House Price Dispersion Gone Up?

Stijn Van Nieuwerburgh and Pierre-Olivier Weill

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 77, issue 4, pages 1567-1606
Published in print October 2010 | ISSN: 0034-6527
Published online October 2010 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2010.00611.x
Why Has House Price Dispersion Gone Up?

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We set up and solve a spatial, dynamic equilibrium model of the housing market based on two main assumptions: households with heterogenous abilities flow in and out metropolitan areas in response to local wage shocks, and the housing supply cannot adjust instantly because of regulatory constraints. In our equilibrium, house prices compensate for cross-sectional productivity differences. We increase productivity dispersion in the calibrated model in order to match the 30-year increase in cross-sectional wage dispersion that we document based on metropolitan-level data. We show that the model quantitatively matches the observed 30-year increase in dispersion of house prices across US metropolitan areas. It is consistent with several other features of the cross-sectional distribution of house prices and wages.

Journal Article.  19230 words.  Illustrated.

Subjects: Economics

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