NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Yingyi Liu

Dept of Economics
University of Illinois
1407 W. Gregory Dr
Urbana, IL 61801

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NBER Working Papers and Publications

November 2016Housing Demand, Cost-of-Living Inequality, and the Affordability Crisis
with David Albouy, Gabriel Ehrlich: w22816
Since 1970, housing's relative price, share of expenditure, and ``unaffordability'' have all grown. We estimate housing demand using a novel compensated framework over space and an uncompensated framework over time. Our specifications pass tests imposed by rationality and household mobility. Housing demand is income and price inelastic, and appears to fall with household size. We provide a numerical non-homothetic constant elasticity of substitution utility function for improved quantitative modeling. An ideal cost-of-living index demonstrates that the poor have been disproportionately impacted by rising relative rents, which have greatly amplified increases in real income inequality.
 
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