Arbitrage in Housing Markets / Edward L. Glaeser, Joseph Gyourko.

Format:

Book

Author/Creator:

Glaeser, Edward L.

Contributor:

National Bureau of Economic Research.

Gyourko, Joseph.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13704.

NBER working paper series no. w13704

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

Urban economists understand housing prices with a spatial equilibrium approach that assumes people must be indifferent across locations. Since the spatial no arbitrage condition is inherently imprecise, other economists have turned to different no arbitrage conditions, such as the prediction that individuals must be indifferent between owning and renting. This paper argues the predictions from these non-spatial, financial no arbitrage conditions are also quite imprecise. Owned homes are extremely different from rental units and owners are quite different from renters. The unobserved costs of home owning such as maintenance are also quite large. Furthermore, risk aversion and the high volatility of housing pries compromise short-term attempts to arbitrage by delaying home buying. We conclude that housing cannot be understood with a narrowly financial approach that ignores space any more than it can be understood with a narrowly spatial approach that ignores asset markets.

Notes:

Print version record

December 2007.