ESSAYS ON HOUSING MARKET AND WEALTH INEQUALITY
ESSAYS ON HOUSING MARKET AND WEALTH INEQUALITY
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Date
2020
Authors
Choi, Hyung Suk
Advisor
Aruoba, Boragan
Shea, John
Shea, John
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DRUM DOI
Abstract
I describe two studies on housing market and wealth inequality. In Chapter
1, I study the impact of changes in U.S. housing policy - down payment requirements
and the mortgage interest deduction - on the wealth distribution through
transitions in housing tenure and asset allocation. I build a simple three-period
overlapping generations model that features endogenous rental supply and voluntary
bequests, and analyze its steady state. I show how down payment requirements
can affect the housing market and the wealth distribution: for example, if the down
payment ratio falls from 0.2 to 0.1, the homeownership rate increases by 5.6% and
the wealth Gini index decreases. In an alternative experiment, when only owneroccupiers
are allowed to borrow using a lowered down payment ratio, the effects on
the housing market and wealth distribution become smaller, with less distortion in
the rental market. Finally, when the home mortgage interest deduction is repealed,
housing demand drops and wealth inequality increases, as only wealthy households
can become homeowners.
Chapter 2 studies the impact of a unique property tax scheme in South Korea
on the housing market and wealth inequality. A recent change to Korea’s property
tax levies a heavy property tax on multiple home owners. The policy objective is
to decrease wealth inequality by penalizing wealthy homeowners who own multiple
houses. I build an eight period dynamic lifecycle model with a housing tenure choice
to study the distributional effects of the Korean property tax scheme. I conduct a
counterfactual experiment which discriminates among homeowners by their units of
owned housing with two different property tax rates and compare outcomes to the
benchmark economy. While the alternative property tax scheme actually decreases
wealth inequality, the magnitude of the effect is very small.