Most developed economies have been experiencing a surging housing wealth since the 1950s. This pattern plays a central role in debates on inequality, on size and structure of the financial sector, and on the access of households to urban labor markets. We provide a novel model to explain the long term increase in housing wealth. The two-sectoral growth model features a housing sector and a non-housing sector, a finite supply of land, and a growing demand for housing consumption. Moreover, we set up a list of six stylized facts on housing & macro. It is shown that the proposed model is largely compatible with the entire list. We argue that the explicit differentiation between residential land (non-reproducible factor) and residential structure (reproducible factor) is key for understanding the data.
Thomas Steger is Professor of Economics at Leipzig University. He is also a Research Fellow at CESifo and a Research Professor of the IWH. Before moving to Leipzig, he was a Postdoctoral Researcher at ETH Zurich. He has also been a Visiting Professor at Heidelberg University, Tilburg University and the University of Washington. His research focuses on economic growth and development, capital mobility and migration, as well as public finance. He has published in many leading journals, including the American Economic Review, Review of Economics and Statistics, Journal of Public Economics, European Economic Review, Journal of Development Economics, as well as the Journal of Economic Dynamics and Control.