Housing Price Dynamics and Their Effects

Housing price dynamics is an important topic in urban economics. Housing plays a crucial role in household’s location choice and leads to the sorting of households by skills. As one of the most important consumption markets in the U.S., the performance of the housing market is closely related to the overall economy. Given these considerations, it is important to examine the housing price dynamics and their effects theoretically and empirically. Essay one focuses on the role of housing prices and wages in allocating people to locations with different levels of amenities. Different from the traditional Rosen (1979) and Roback (1982) model, we make a more realistic assumption of differential ability across households. Using a spatial equilibrium model where households are sorted by ability, we find that the standard quality of life estimates are significantly biased with unobserved heterogeneity. Essay two investigates across metropolitan housing price dynamics. Specifically, we examine the effect of amenities on rents, housing prices, and price-to-rent ratio over time in response to an income shock using a dynamic general equilibrium model. Although households’ marginal utility from increases in amenity levels goes up as productivity rises, the increasing returns to productivity with ability make amenities less important in the bidding process. Essay three studies non-price spillover effects of foreclosure during the crisis, which is potentially due to the information or norms that are created by exposure to foreclosure of housing units at the neighborhood level. I find no evidence of spillover effects of foreclosure after controlling for effects that operate through housing price dynamics and systematic patterns of trends in foreclosure at the neighborhood level