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The housing market does not work nearly as smoothly as the market for most other type of assets or consumption goods. Since houses are all different, there is no single market price for houses which could be easily observed. The aim of this research project is to develop economic models and methods that account for aforementioned fundamental frictions and that can be used to analyse various housing policies or evaluate how certain trends show up in the housing market.
The central feature of housing is that it comes embedded in indivisible and heterogeneous units which are tied to a certain geographical location. What we refer to as houses or flats are really bundles of land and structures in a given neighbourhood. The quality of land is inherently heterogeneous because locations differ in their attractiveness. The supply of structures is also more or less fixed at least in the short term.
The heterogeneity and indivisibility of houses is a crucial issue to take into account when considering housing policies such as land development, construction regulation and public housing programs. Since the distribution of existing houses is largely fixed, different supply side policies, for instance, can have very different effects depending on the type of houses that are constructed. These price effects may in turn have distributional effects. Housing demand subsidies have similar non trivial effects on the distribution of housing prices. The heterogeneity and indivisibility of houses also imply that the housing market does not work nearly as smoothly as the market for most other type of assets or consumption goods.
The general aim of this research project is to develop economic models and methods that account for aforementioned fundamental frictions and that can be used to analyse various housing policies or evaluate how certain trends show up in the housing market. We also need empirical measures about the supply constraints. Ideally, we have the value and availability of land in different locations. Therefore, one important part of the research project is to produce policy relevant information on local housing supply conditions in Finland using state-of-the-art GIS (geographical information systems) techniques.
Researchers: Essi Eerola (Government Institute for Economic Research), Niku Määttänen (Research Institute of the Finnish Economy), Tuukka Saarimaa (Government Institute for Economic Research), Marko Terviö (Aalto University)
