This paper develops a model of the U.S. housing market that explains much of the time series of rents and house prices since World War II. House prices depend on expectations of future rents. The authors show that rents are tied to regional income inequality, and therefore, house prices are determined by how much faster incomes are growing in richer regions. This theory also matches many cross-sectional facts, including regional variation in rents and prices, diering house price sensitivities to national trends, patterns of interstate migration, and surveys of income expectations. An industry shift-share instrument provides causal evidence for their channel. The model implies that while interest rates have an ambiguous effect on house price levels, low rates increase house price volatility.
The aim of this seminar series is to bring together people from academia and industry interested in the latest real estate research. In this series of bi-weekly presentations, we invite papers from scholars who would like to present their ongoing work. Presentations will be 25 minutes long, followed by 25 minutes for the Q&A session. Junior researchers, students, and practitioners are very welcome to take part.