Econ 366 - Chapter 10

Econ 366 - Chapter 10 - Chapter 10 The Market for Housing...

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Chapter 10 The Market for Housing 1. Quantity and Price Measures for Housing 2. Cost of Capital: Complications 3. The Market for Housing
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1. Introduction 1. Housing is an important household good (crucial for living standard). Americans devote15.5% of income to housing and 12.5% to utilities, insurance, maintenance, etc. 2. Housing is the most important privately owned asset . 40% of the market value of all privately owned fixed capital. About 1.8 times annual disposable income. 3. Housing is among the most durable assets (average 40-50 years). By comparison other privately owned assts like consumer durables and producers’ equipment last 5 – 20 years
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2. Quantity and Price Measures Only housing values can be observed directly – not quantity or price Compare a $100000 and a $ 200000 house: Is the second house twice as expensive (higher price) or does it represent twice as much housing (higher quantity)? Who is paying a higher price – owner ($100000) or renter ($700)
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A. Quantity Sq feet quality 1 unit 1 unit H 1. Reference curve: the indifference curve that is (arbitrarily) selected to represent 1 unit of housing 2. For any house (representing a sq feet-quality combination), we join it to the origin. If the distance from the origin is twice the distance of the
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Econ 366 - Chapter 10 - Chapter 10 The Market for Housing...

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