Housing demand, inequality, and spatial sorting
File(s)
Published version
Author(s)
Finlay, Robert John
Williams, Trevor
Type
Journal Article
Abstract
Skilled workers’ incomes have pulled away from those of unskilled workers in recent decades, reflecting increasing skill bias in production. How has this changed the spatial distribution of skill? We show nonhomothetic housing demand connects aggregate income inequality to
spatial sorting. A household’s skill level determines its income, and therefore its housing expenditure share, sensitivity to housing costs, and location preferences. The result is spatial sorting by skill. Moreover, diverging incomes cause diverging location choices. Using consumption microdata, we estimate that housing is a necessity. Increasing total expenditure by 10% reduces
housing expenditure shares by 2.5%. Skilled workers therefore sort into expensive cities, and by raising their relative incomes, increases in aggregate skill bias intensify sorting. Embedding our estimated preferences in a quantitative spatial model, we find that without rising aggregate skill bias, spatial sorting would have grown one quarter less since 1980.
spatial sorting. A household’s skill level determines its income, and therefore its housing expenditure share, sensitivity to housing costs, and location preferences. The result is spatial sorting by skill. Moreover, diverging incomes cause diverging location choices. Using consumption microdata, we estimate that housing is a necessity. Increasing total expenditure by 10% reduces
housing expenditure shares by 2.5%. Skilled workers therefore sort into expensive cities, and by raising their relative incomes, increases in aggregate skill bias intensify sorting. Embedding our estimated preferences in a quantitative spatial model, we find that without rising aggregate skill bias, spatial sorting would have grown one quarter less since 1980.
Date Issued
2025-12-01
Date Acceptance
2025-09-14
Citation
Journal of International Economics, 2025, 158
ISSN
0022-1996
Publisher
Elsevier
Journal / Book Title
Journal of International Economics
Volume
158
Copyright Statement
© 2025 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
License URL
Publication Status
Published
Article Number
104171
Date Publish Online
2025-09-29