ESSAYS ON HOUSING MARKET AND WEALTH INEQUALITY
Choi, Hyung Suk
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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 Finally, when the home mortgage interest deduction is repealed, housing demand drops and wealth inequality increases, as only wealthy households can become homeowners.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.