TY  - JOUR
AU  - Bajari,Patrick
AU  - Benkard,C. Lanier
AU  - Krainer,John
TI  - House Prices and Consumer Welfare
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9783
PY  - 2003
Y2  - June 2003
UR  - http://www.nber.org/papers/w9783
L1  - http://www.nber.org/papers/w9783.pdf
N1  - Author contact info:
Patrick Bajari
Professor of Economics
University of Minnesota
4-101 Hanson Hall
1925 4th Street South
Minneapolis, MN 55455
Tel: 612/625-8369
Fax: 612/624-0209
E-Mail: bajari@econ.umn.edu

C. Lanier Benkard
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305
Tel: 650 725-2173
E-Mail: lanierb@stanford.edu

John Krainer
Research Department
Federal Reserve Bank of San Francisco
P.O. Box 7702
San Francisco, CA  94120
E-Mail: john.krainer@sf.frb.org
AB  - We develop a new approach to measuring changes in consumer welfare due to changes in the price of owner-occupied housing. In our approach, an agent's welfare adjustment is defined as the transfer required to keep expected discounted utility constant given a change in current home prices. We demonstrate that, up to a first-order approximation, there is no aggregate change in welfare due to price increases in the existing housing stock. This follows from a simple market clearing condition where capital gains experienced by sellers are exactly offset by welfare losses to buyers. Welfare losses can occur, however, from price increases in new construction and renovations. We show that this result holds (approximately) even in a model that accounts for changes in consumption and investment plans prompted by current price changes. We estimate the welfare cost of house price appreciation to be an average of $127 per household per year over the 1984-1998 period.
ER  -