Quality, Inequality and Understanding Housing Markets

Louie, Schuyler; Mondragon, John; Najjar, Rami; Wieland, Johannes F.

doi:10.24148/wp2026-18

Working Paper

Quality, Inequality and Understanding Housing Markets

Abstract: Most housing research relies on a single-margin model where a single housing price relates to a single housing quantity. We generalize this approach by introducing income inequality and housing quality. Two important challenges to studying housing supply (and demand) emerge: First, there is no singular housing supply function, instead there is a continuum of unit-supply functions indexed by quality. This implies that supply elasticity estimates are local average treatment effects (LATEs), not structural elasticities. Second, spillovers common in spatial settings may preclude even the LATE interpretation of estimates, which are instead local general equilibrium objects. Critically, these issues cannot be bypassed by using the land share of value to measure supply constraints as it is not even a diagnostic for supply constraints in the standard model. We suggest that understanding heterogeneity in incomes and housing services quality is likely critical to understanding housing markets more generally.

https://doi.org/10.24148/wp2026-18