The Financial Markets Group at the London School of Economics carried out the research. It developed a life-cycle model to investigate how prices of housing (purchasing and renting), the overall economy and wealth distribution react to changes in technology and financial conditions.
There were a number of conclusions from the investigation, including:
"The research illustrates how constraints on the supply of land, for instance through zoning restrictions, can have major implications for household welfare through their effect on house prices and individual home ownership," said Dr Alex Michaelides who led the research. "Our work can also be used to determine more accurately the component of house prices driven by fundamentals. It can therefore provide a better understanding of the house price component that can be attributed to a housing bubble, which can be a useful policy tool."
The model mirrored the life-cycle choices of homeowners and renters and was used to:
As a result of this research the model can be used to better understand drivers and fluctuations in the housing market.
FOR FURTHER INFORMATION, CONTACT
Dr Alex Michaelides Tel: +35 (0) 722893645, email: firstname.lastname@example.org, or email@example.com
ESRC Press Office:
Danielle Moore (Tel: 01793 413122, email: firstname.lastname@example.org)
Jeanine Woolley (Tel: 01793 413119, email: email@example.com)
(Out of office hours number: Tel: 07554333336)
NOTES FOR EDITORS
1. The project, Home Ownership, Housing Collateral and Aggregate Fluctuations was funded by the Economic and Social Research Council and was carried out by Dr. Alex Michaelides. At the time, he was part of the Financial Markets Group and a reader at the Department of Economics, London School of Economics (LSE), Houghton Street, London, WC2A 2AE. In September 2010, Dr. Michaelides became Professor of Finance at the University of Cyprus.
2. The project's theoretical model was solved numerically in Fortran 90 - a programming language ideally suited to numeric computation. The data came from the US Survey of Consumer Finances and the aggregate data was derived from the US Flow of Funds Accounts and the National Income and Product Accounts.
3. A housing bubble is a situation where there is an enhanced demand for real estate, especially housing, that is often created through artificial means, such as the lowering of interest rates.
4. The Economic and Social Research Council (ESRC) is the UK's largest organisation for funding research on economic and social issues. It supports independent, high quality research which has an impact on business, the public sector and the third sector. The ESRC's total expenditure in 2009/10 was about £211 million. At any one time the ESRC supports over 4,000 researchers and postgraduate students in academic institutions and independent research institutes. More at http://www.esrcsocietytoday.ac.uk
5. The ESRC confirms the quality of its funded research by evaluating research projects through a process of peer review. This research has been graded as outstanding.
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