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 profit 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.
The Journal of Real Estate Finance and Economics – Springer Journals
Published: Oct 18, 2004
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