Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
How Regional Inequality and Migration Drive Housing Prices and Rents
Journal of Economic Perspectives
(pp. 3–26)
(Complimentary)
Abstract
We argue that rising regional inequality contributes to higher average housing prices and rents. We show three key empirical facts that contribute to this mechanism: first, income growth has been faster in already high-income cities; second, people are drawn to these cities by the income growth, raising relative housing demand and relative housing prices and rents; and third, housing supply in these cities is inelastic due to density and regulation, so these cities have not produced the housing to match the rising demand. We illustrate the resulting changes using a graphical spatial model in which rising regional inequality reallocates population toward high-income, supply-constrained areas. This shift raises national average housing prices and rents.Citation
Howard, Greg, and Jack Liebersohn. 2025. "How Regional Inequality and Migration Drive Housing Prices and Rents." Journal of Economic Perspectives 39 (3): 3–26. DOI: 10.1257/jep.20241426Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- R12 Size and Spatial Distributions of Regional Economic Activity
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
- R31 Housing Supply and Markets