Essays in Urban and Real Estate Economics

I study the micro-structure of housing markets, in particular the relative differences in within-city house price dynamics. For example, houses in the top price quantile in Cleveland appreciated 26 percent during the period of 2000 to 2007, while those in the bottom price quantile grew only 6 percent over the same time period in the same city. This type of heterogeneity is common to many other cities and time periods.  My dissertation involved building a model framework to understand these relative differences in within-city house price dynamics.

In my paper, I propose that the distributions of houses and homebuyers jointly explain the distribution of house prices and explain the difference in their evolution over time. Using housing transaction data from 188 U.S. cities from 2000 to 2015, I empirically show and theoretically validate that the effect of distributions on house prices could be summarized by the relative local rank position of the house in the house price distribution. I group houses into sub-market segments by their relative rank in the local house price distribution: in other words, a house is in top 20th percentile if its price is ranked in the top 20th percentile in the city. 

My paper finds and estimates this new effect of relative local rank on prices, and explains it using an assignment model framework. This local rank effect arises because the market clearing process in the assignment model operates in a vertically ranked order and matches the joint distributions of households and houses, generating two countervailing forces where demand spills upwards and supply is added from the top down. These two forces result in mismatch in demand and supply at some segments, which causes general equilibrium spillovers to prices in other segments. I structurally estimate the spillovers, show they drive house price segmentation, and account for 8 percent of variation in prices on average.

These findings provide new insights on within-market vertical spillovers across price ranks in local housing markets, and help us understand how targeted housing policies (for example, low-income housing subsidies) could have spillover effects on other segments within the same local market. 

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