Working Paper: NBER ID: w22816
Authors: David Albouy; Gabriel Ehrlich; Yingyi Liu
Abstract: Since 1970, housing's relative price, share of expenditure, and ``unaffordability'' have all grown. We estimate housing demand using a novel compensated framework over space and an uncompensated framework over time. Our specifications pass tests imposed by rationality and household mobility. Housing demand is income and price inelastic, and appears to fall with household size. We provide a numerical non-homothetic constant elasticity of substitution utility function for improved quantitative modeling. An ideal cost-of-living index demonstrates that the poor have been disproportionately impacted by rising relative rents, which have greatly amplified increases in real income inequality.
Keywords: Housing Demand; Cost of Living; Inequality; Affordability Crisis
JEL Codes: D12; E31; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing rents (R21) | worsening housing affordability (R31) |
| increasing housing prices (R31) | smaller proportional decreases in quantity demanded (D11) |
| rising income inequality (D31) | exacerbated affordability crisis (R31) |
| declining household sizes (R20) | increased per capita demand for housing (R21) |