Essays on macroeconomics and housing

Abstract

This dissertation comprises two essays at the intersection of macroeconomics and housing markets. I study how market structure, intermediary activity, and risk shape house price distributions, tenure choices, trade volumes, and welfare. Essay 1: Flipping Houses in a Decentralized Market. How does intermediation in the housing market affect an economy's house price distribution, trade volume, and welfare? I study flipping houses - fast buying and reselling houses by intermediaries, which has become more prevalent in recent years. While more flipping increases market thickness, it also involves intermediaries holding housing assets instead of households. Which effect dominates for welfare? To answer these questions, I develop a decentralized trade model with intermediaries with two-sided heterogeneity in inventory and housing asset valuation, where households trade houses with each other or with flippers. Search is random, information is asymmetric, and household valuations evolve stochastically. Using a universe of administrative transaction data from Ireland, I document a steady increase in house prices, trade volume, and flipped transactions between 2012 and 2022. In particular, I find that the number of flipped transactions doubled. Through a calibrated model, I use an increase in the mass of flippers to cause an increase in flipping. This increase in flipping led to a 1.5% decrease in average house prices, implying the increase in house prices seen in the data was not caused by flippers but instead by the decrease in mortgage rates. The increase in flipping in the model caused a modest increase in trade volume as compared to the data. Finally, I find the increase in flipping caused an average decrease in household welfare of 0.2%, chiefly by decreasing the steady state fraction of households owning a home. On the positive side, misallocation of housing due to search frictions decreased. Essay 2: Homeownership as Rental Risk Insurance joint with Hasan Cetin. Why do households choose to own rather than rent, even when ownership requires large upfront costs and long-term commitments? This paper proposes that homeownership serves as insurance against rental-price risk. Using panel data we document that rental risk rises with age. To quantify the implications of this risk, we develop a life-cycle model in which heterogeneous households choose between renting and owning under income, rent, and house price shocks, subject to borrowing constraints, moving costs, and bequest motives. Because of rental risk, homeownership rate falls by 0.7 percentage points-indicating that the desire to self-insure against uninsurable rent shocks accounts for a significant share of observed ownership. The mechanism operates primarily through the extensive margin: higher rental volatility encourages transitions into ownership, especially for middle-aged households near the down payment threshold. These findings highlight a previously underappreciated motive for homeownership and suggest that volatility in rental markets can have first-order effects on tenure decisions and welfare.