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Perhaps one of the most important aspects of any city is for people to have places to live- which is why urban economists study housing in relation to cities.  Housing is similar to goods and services in that there is a supply and demand. However it differs in many other aspects such as the fact that housing in heterogeneous, durable, and is location-specific so generally when it is built it is not moved from that location.  Every house is unique and there are no two that are exactly alike because of age, size, quality, and most importantly, location.  If you want to change your house, then you will have to move to a new location with a different house.  There is sorting for housing because everyone prefers something different in a house and there is the factor of affordability as well. The value of a house increases when there are things nearby that people desire to live near such as parks, good schools, lakes, and a generally nice area.

Moving Costs:

With many goods and services, if you are unhappy, you can do something to change it.  However, with housing there are fewer options as you can move or put an addition on the house, both of which cost money.  To move there are many costs including moving all of your belongings and getting rid of things and there is also the cost of detaching yourself from the neighborhood in which you currently reside.  When you move, you have to start all over with building connections with the new surroundings, including to new people and places. 

As a person's income grows, they will generally demand more and will probably want to move into a bigger dwelling.  At first, even though their income is growing, the cost of moving is still too great in comparison to their increase in income.  Eventually, the increase in income will become great enough to justify moving to a different house or location. 

The Housing Market:

Housing is the most durable asset to own after land.  It can last for hundreds of years if built structurally sound.  98% of all liveable housing units is used. The housing stock can change through the creation of new units and through the retirement of old units.  Over the years, a house will depreciate and decrease in quality and value.  Originally, a rich family may own the home, but as the home gets older they will decide to sell it to a middle class family.  The house continues to depreciate and that middle class family sells the house to a poorer family.  This cycle continues and that is why the newest housing in nicer subdivisions is owned by wealthier families.  This process is known as filtering within the housing market. This tends to mean that central cities are often filled with the poorest as it is easier for them since the commute is less and they are receiving older housing than those who can live in the subdivisions farther from the CBD.


Sometimes an owner will stop paying taxes and maintaining a property which results in an abandoned property.  This is bad because they generate no revenue for the local government, they can be eyesores, they can attract crime, and they can bring down the value of the surrounding houses.  An owner may choose to abandon a property when the taxes and maintenance on it are more than the house is worth or that it might rent for.  Even though the land may have value, there are demolition costs associating with tearing down the house that may even be greater than what the land is valued at.  Thus, if the cost of demolition is greater than the value of the land the obvious choice is to abandon the property.  This can create a vicious circle in that one abandoned property causes the value of surrounding properties to decline and that leads to those properties possibly being abandoned and so on and so on.  This is a particular problem in central cities where there are older homes that are not being maintained and the abandonment is spreading out. 

Public Housing

Public housing is allocated to those who need financial assistance and struggle with their income.  It is managed by local authorities and the rent charged can be no more than one-third of their monthly income or the fair market rent, whichever happens to be lower at the time.  Newly constructed public housing can often be more expensive than the older homes available for rent and this is one of the contributing factors as to why it is often considered a failure.  Public housing can also have adverse effects in that it concentrates poverty and its associated societal ill of crime in one area, and it creates spillover effects in the surrounding communities.  So the crime of one area will soon spread to the surrounding areas. Housing vouchers are another means of trying to help those who are unable to pay the normal rents.  The coupon is worth one-third of their monthly income and may be used anywhere in which they wish to rent. The vouchers are criticized for having poor implementation and landlords may discriminate or have reluctance to allow them to rent at lower prices.  It also increases the price of housing for other people in order to compensate for what the landlords are losing.  Although vouchers are not the best solution,they are often considered to be a lot better than public housing.

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