'We'll Always Have Paris': Out-of-Country Buyers in the Housing Market

Abstract

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Residential Income Segregation: A Behavioral Model of the Housing Market

“…Therefore, the prices increase at the least attractive locations too and the lowest-income households get segregated out of the city. Favilukis and Van Nieuwerburgh (2017) come to the same conclusion within an overlapping generations model, and this finding gets some empirical support from Cvijanovic and Spaenjers (2018) and Sá (2016).…”

“…We also experiment with an additional influx of rich agents in the center, testing whether the prices only grow in this location or whether they increase all over the city. We mimic the process by which rich households coming from outside -the "foreigners" -purchase real-estate properties in a city, either as a luxury good or as a secondary residence (Cvijanovic and Spaenjers, 2018). 14 These buyers usually choose the most attractive locations, and distort the local housing market because of their disproportionately high reservation prices (Chinco and Mayer, 2015).…”

“…These conclusions are supported by indirect empirical evidence. For example, Cvijanovic and Spaenjers (2018) analyze the purchases of foreigners in the Paris housing market and show that foreigners crowd out residents, overpay and cause prices to increase in the most attractive locations. Sá (2016) finds that foreign investment in England and Wales has a positive causal effect on house price growth at different percentiles of the distribution, but she does not consider the spatial aspect.…”

“…Another important category of wealthy external buyers is investors, who are mostly driven by interest and exchange rates and by home market conditions(Cvijanovic and Spaenjers, 2018). As already mentioned, in this paper we focus on long-term outcomes.…”

A Model of Trading in the Art Market

“…A distressed owner receives an emotional dividend of c ≤ 0 , which reflects that, when in distress, the pleasure derived from a luxury good may be negligible, while storage and insurance still need to be paid. 7 Auctions and Sales.-In each period t , after observing whether he is in distress, the owner decides whether to keep the artwork until the next period or to "consign," i.e., to initiate an English auction with a reserve price r of his choice. The number of bidders that participate in an auction at time t equals n ω t , which can vary with the macroeconomic state.…”