Housing Search and Liquidity in Spatial Equilibrium

Résumé

Local housing markets differ in their liquidity, the ease of transacting. Using Finnish data and a new measure for local market tightness, we document cross-sectional obser-vations regarding housing liquidity: i) across locations, association between liquidity and prices is positive - selling is easier in more expensive locations, ii) within a location but across unit types, association between liquidity and prices is negative - selling smaller units is easier than selling larger units, and iii) better liquidity is closely tied with higher tightness. To rationalize these observations, we set up a model of housing search in the cross-section of multiple interconnected local markets. Markets vary in structural char-acteristics, which affects the allocation of searchers across local markets and the resulting tightness. Taking the model to data, we find that the value of housing services and the efficiency of the meeting technology explain most of the cross-sectional variation in liquidity.