Do rising tides lift all prices? Income inequality and housing affordability

Type Journal Article - Journal of Housing Economics
Title Do rising tides lift all prices? Income inequality and housing affordability
Author(s)
Volume 17
Issue 3
Publication (Day/Month/Year) 2008
Page numbers 212-224
URL http://piketty.pse.ens.fr/fichiers/enseig/ecoineg/articl/MatlackVigdor2006.pdf
Abstract
Simple partial-equilibrium models suggest that income increases at the high end of the distribution
can raise prices paid by those at the low end of the income distribution. This prediction does not
universally hold in a general equilibrium model, or in models where the rich and poor consume
distinct products. We use Census microdata to evaluate these predictions empirically, using data on
housing markets in American metropolitan areas between 1970 and 2000. Evidence clearly and
unsurprisingly shows that decreases in one's own income lead to less housing consumption and less
income left over after paying for housing. The effect of increases in others' income, holding one's
own income constant, is more nuanced. In tight housing markets, the poor do worse when the rich
get richer. In slack markets, at leastsome evidence suggeststhat increasesin others' income, holding
own income constant, may be beneficial.

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