A1 Refereed original research article in a scientific journal
Buying a Home with a Resale Value: Location, Location, Location
Authors: Haavio M, Kauppi H
Publisher: WILEY-BLACKWELL
Publication year: 2013
Journal: Scandinavian Journal of Economics
Journal name in source: SCANDINAVIAN JOURNAL OF ECONOMICS
Journal acronym: SCAND J ECON
Volume: 115
Issue: 4
First page : 1046
Last page: 1083
Number of pages: 38
ISSN: 0347-0520
DOI: https://doi.org/10.1111/sjoe.12033
Abstract
We develop a dynamic multiregion model, where a household's choice of housing location depends on its current wealth and its current type, and involves both consumption and investment considerations. The relative strength of the consumption motive and the investment motive determines the equilibrium pattern of residential sorting. A strong investment (consumption) motive implies sorting according to household type (wealth). The model predicts that large house-price fluctuations are associated with a low degree of sorting by type. This prediction is consistent with evidence from US metropolitan areas when income, education, and age are used as proxies for household type.
We develop a dynamic multiregion model, where a household's choice of housing location depends on its current wealth and its current type, and involves both consumption and investment considerations. The relative strength of the consumption motive and the investment motive determines the equilibrium pattern of residential sorting. A strong investment (consumption) motive implies sorting according to household type (wealth). The model predicts that large house-price fluctuations are associated with a low degree of sorting by type. This prediction is consistent with evidence from US metropolitan areas when income, education, and age are used as proxies for household type.
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