TY  - JOUR
AU  - Glaeser,Edward L.
AU  - Gyourko,Joseph
TI  - Arbitrage in Housing Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13704
PY  - 2007
Y2  - December 2007
UR  - http://www.nber.org/papers/w13704
L1  - http://www.nber.org/papers/w13704.pdf
N1  - Author contact info:
Edward L. Glaeser
Department of Economics
315A Littauer Center
Harvard University
Cambridge, MA 02138
Tel: 617/495-0575
Fax: 617/495-7730
E-Mail: eglaeser@harvard.edu

Joseph Gyourko
University of Pennsylvania
Wharton School of Business
3620 Locust Walk
1480 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6302
Tel: 215/898-3003
Fax: 215/573-2220
E-Mail: gyourko@wharton.upenn.edu
AB  - Urban economists understand housing prices with a spatial equilibrium approach that assumes people must be indifferent across locations.  Since the spatial no arbitrage condition is inherently imprecise, other economists have turned to different no arbitrage conditions, such as the prediction that individuals must be indifferent between owning and renting.  This paper argues the predictions from these non-spatial, financial no arbitrage conditions are also quite imprecise.  Owned homes are extremely different from rental units and owners are quite different from renters.  The unobserved costs of home owning such as maintenance are also quite large.  Furthermore, risk aversion and the high volatility of housing pries compromise short-term attempts to arbitrage by delaying home buying.   We conclude that housing cannot be understood with a narrowly financial approach that ignores space any more than it can be understood with a narrowly spatial approach that ignores asset markets.
ER  -