Housing Consumption Declines With Income in the Open‐city Model: Theory and Empirical Evidence

Abstract

This paper demonstrates that the standard urban model (SUM) has important, previously unknown, and rather counterintuitive predictions about the determinants of housing consumption in cities. For example, the SUM predicts that, as higher wages in the central business district prompt city growth, the housing space per household falls, that is, rising income is associated with falling housing consumption. Empirical testing using a specially constructed panel data set of U.S. cities, confirms this prediction. When city size, income, and housing price rise, housing space per household falls.

Spatial equilibrium in deviations: An application to skill‐premium and skill‐mix heterogeneity

“…Indeed, unskilled people are less willing to live in cities that are more expensive, since they spend relatively more on housing. A similar conclusion is reached in Liu (, p. 895).…”

“…See also Bayer, Ferreira, and McMillan (), Brasington, Hite, and Jauregui (), and Liu (). For a theoretical analysis from a Schelling's perspective, see Zhang (2011).…”