Housing Tenure and Wealth Distribution in Life-Cycle Economies

Pedro Silos
Working Paper 2005-25
October 2005

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Common practice in the housing and wealth distribution literature has proceeded as if the modeling of housing rental markets was unnecessary due to renters’ relative low levels of wealth and the small fraction they represent in the total population. This paper shows, however, that their inclusion matters substantially when dealing with wealth concentration over the life cycle. Renters are concentrated in the poorer and younger groups. This concentration results in a pattern of housing wealth concentration over an agent’s life that is decreasing, with a slope as steep as that of nonhousing (or financial) wealth. The author constructs an overlapping-generations economy with a housing rental market that is consistent with this fact.

JEL classification: E21, D30

Key words: wealth concentration, life cycle, housing

This paper is part of my Ph.D. dissertation, completed while I was at the University of Iowa. I would like to thank Beth Ingram, Paul Weller, Steve Williamson, and especially B. Ravikumar and Charles Whiteman for their help. The views expressed here are the author’s and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.

Please address questions regarding content to Pedro Silos, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, 30309-4470, 404-498-8630 (phone), 404-498-8956 (fax), Pedro.Silos@atl.frb.org.