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Nonmarket allocation and the willingness to pay in regulated housing markets

Nonmarket allocation and the willingness to pay in regulated housing markets. Jos N van Ommeren and Arno J van der Vlist Department of Economics Department of Economic Geography VU University University of Groningen j.n.van.ommeren@vu.nl a.j.van.der.vlist@rug.nl. ERES – July 4, 2013.

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Nonmarket allocation and the willingness to pay in regulated housing markets

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  1. Nonmarket allocation and the willingness to pay in regulated housing markets Jos N van Ommeren and Arno J van der Vlist Department of Economics Department of Economic Geography VU University University of Groningen j.n.van.ommeren@vu.nla.j.van.der.vlist@rug.nl ERES – July 4, 2013

  2. Regulated housing in Global cities Households cannot reveal their true willingness to pay

  3. Literature on regulated housing markets • Random housingallocation -> misallocation (GlaeserandLuttmer, 2003) • Rent control in privateregulatedhousing -> limitedhousingsupply (Olsen and Barton, 1983; GyourkoandLinneman, 1989)

  4. This paper • Methodology that exploit the queueing time to estimate the households’ marginal willingness to pay (MWP) • Present and compare results for households’ MWP for regulated housing vis-a-vis private housing in Amsterdam Metropolitan Housing Market

  5. Model outline • Housing market • Number of households N0 • Private market vs. regulated market • Regulated housing is preferred over private • Households in queue stay in private market • v= v (X,r) with market value X and rent r • Number of regulated housing N1 < N0 v > v0

  6. Model - households Households’ lifetime utility V Private market Regulated market

  7. Model – households’ optimal queueing time Maximizing lifetime utility V with respect to queueing time τ(v) Max τ(v) gives

  8. Model – housing market Steady state Housing market • nv/τ(v) households receive a house offer • Nv/[T-τ(v)] households leave the housing market • Excess demand equals queue: • In steady state: nv/τ(v) = Nv/[T-τ(v)] ∂nv/∂v = ∂nv/∂τ(v) * ∂τ(v)/ ∂v > 0

  9. Model –towards an empirical model From households’ maximization we have From the steady state housing market condition we have ∂nv/∂v = ∂nv/∂τ(v) * ∂τ(v)/ ∂v > 0 It follows that

  10. Empirical model + - τ(v) Queuing time X property tax appraisal value r regulated rent

  11. Data

  12. Data

  13. Estimation results

  14. Robustness analysis • Eligible vs noneligible households (low- high income) • Tobit analysis for Censoring duration

  15. Estimation results

  16. Conclusion • Queueing time can be exploited to estimate the MWP for housing in regulated markets • Queuing time varies with market value + and rent – • MWP for regulated housing is close to the annual capitalization rate for private housing [4.7-6.2] • Households pay about (2/3) of MWP so that inefficient housing consumption is most likely

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