DP10756 The Housing Cost Disease
|Author(s):||Nicola Borri, Pietro Reichlin|
|Publication Date:||August 2015|
|Keyword(s):||Capital, Housing, Productivity, Wealth, Wealth Inequality|
|JEL(s):||D9, E2, O4|
|Programme Areas:||International Macroeconomics and Finance, Macroeconomics and Growth|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10756|
We use a simple two-sector, life-cycle economy with bequests to explain the increasing wealth to income ratio, housing wealth and wealth inequality that have been observed in several countries over the long-run as a consequence of a rising labor efficiency in manufacturing (housing cost disease). When consumption inequality across households is sufficiently large, the housing cost disease has adverse effects on a measure of social welfare based on an egalitarian principle: the higher the housing's value appreciation, the lower the welfare benefit of a rising labor efficiency in manufacturing.