Winners and Losers in Housing Markets


  • This paper was presented as the 2009 JMCB Lecture on June 2, 2010. We would like to thank Francesco Caselli, Joao Cocco, Morris Davis, Marco Del Negro, Wouter den Haan, Xavier Gabaix, Bernardo Guimaraes, Matteo Iacoviello, Dirk Krueger, Felix Kubler, Francois Ortalo-Magne, Victor Rios-Rull, Martin Schneider, Don Schlagenhauf, Nicholas Souleles, Noah Williams, and participants of various conferences and seminars for helpful comments. An older version of this paper was circulated as “From Shirtsleeves to Shirtsleeves in a Long Lifetime”. Financial support from the ESRC “World Finance and the Economy” program under grant RES-165-25-0025, and hospitality from the Central Bank of Cyprus, are gratefully acknowledged.


This paper is a quantitatively oriented theoretical study into the interaction between housing prices, aggregate production, and household behavior over a lifetime. We develop a life-cycle model of a production economy in which land and capital are used to build residential and commercial real estates. We find that in an economy where the share of land in the value of real estates is large, housing prices react more to an exogenous change in expected productivity or the world interest rate, causing a large redistribution between net buyers and net sellers of houses. Changing financing constraints, however, has limited effects on housing prices.