Hot property. The amplifying effects of housing costs on regional inequality
Abstract
Using a spatial equilibrium model with labor market frictions and non-homothetic preferences, we show that the effects of local shocks on regional inequality are significantly amplified when the housing expenditure share is large and falls with income (that means housing is a necessity good). This is because under non-homothetic preferences local shocks have a much larger impact on real earnings and, in turn, on inter-regional labor mobility. We quantitatively evaluate the model on the basis of German data. Our findings help to explain the reduction in the divide between the West and East Germany over the last fifteen years.
Fields of Study & Subjects
Housing Market and Economics
Regional Economics and Spatial Analysis
Regional Economic and Spatial Analysis
Publication details
- Journal / source
- Regional Science and Urban Economics
- Volume
- 118
- Pages
- 104189–104189
- Publication date
- 13 January 2026
- Language
- EN