Journal of Real Estate Finance and Economics, 24:3, 277±299, 2002
# 2002 Kluwer Academic Publishers. Manufactured in The Netherlands.
Residential Search and Mobility in a Housing Market
ARNO J. VAN DER VLIST*
Department of Economics, Free University Amsterdam, De Boelelaan 1105, 1081 HV, Amsterdam,
The Netherlands and Tinbergen Institute, Amsterdam, The Netherlands
In this paper, we propose an equilibrium model for the housing market which provides an explanation for
observed housing consumption of households over their lifetimes. The moving behavior of households is
described as a stochastic dynamic process in which households' moving decisions depend on information which
is obtained over time. Households move when the offer exceeds an endogenously determined threshold. On the
basis of the households' moving behavior, the steady-state distribution of households over the housing stock is
obtained. On the supply side of the market, landlords are looking for households to occupy their vacant dwellings.
Their strategy is to set rents in a mixed strategy in order to pro®t from imperfect information. After formulating
search behavior of households as well as the behavior of landlords, the market equilibrium is derived. We explore
the sensitivity of the equilibrium to changes in the structural parameters.
Key Words: household behavior, residential mobility, housing markets
JEL Code: D1, R21
The imperfect operation of the housing market has become a major issue in housing
market analysis over the last decade. Indeed, it needs little explanation to understand that
perfect housing markets are far removed from economic reality. The relatively high costs
of housing construction, its durability, indivisibility, heterogeneity and locational ®xity
all hamper the instantaneous adjustment of housing consumption to changes in preferences
or socioeconomic circumstances. Indeed, the housing market can usually be characterized
(1) extensive search efforts by households in order to obtain a dwelling; (2)
idiosyncratic preferences of households; (3) adjustment of housing consumption by
moving; (4) frictions leading to vacancies;
(5) oligopolistic supply of dwellings, which
gives suppliers market power in setting the price; (6) price dispersion; and, (7) relatively
slow adjustment of supply in response to market changes.
The implications of this market structure are far-reaching, in that observed behavior
does not only reveal households' preferences for housing, but also reveals housing market
factors. The purpose of this paper is to show that search theory provides an explanation for
*Author for correspondence.