Discussion Paper Details

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Title: The Housing Cost Disease

Author(s): Nicola Borri and Pietro Reichlin

Publication Date: August 2015

Keyword(s): Capital, Housing, Productivity, Wealth and Wealth Inequality

Programme Area(s): International Macroeconomics and Finance and Macroeconomics and Growth

Abstract: 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.

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Bibliographic Reference

Borri, N and Reichlin, P. 2015. 'The Housing Cost Disease'. London, Centre for Economic Policy Research.