Investors in Housing Market Search

Abstract

We add specialist investors–agents who attempt to profit from buying low and selling high–to a canonical housing market search model. These agents facilitate the turnover of mismatched houses on behalf of end-users and they may survive even if they face an arbitrarily large cost of financing vis-a-vis ordinary households. Multiple equilibrium may exist. In one equilibrium, the participation of investors is extensive, resulting in rapid turnover, a high vacancy rate, and high housing prices. In another equilibrium, few houses are bought and sold by investors. Turnover is sluggish, few houses are vacant, and prices are moderate. A decline in the rate at which investors finance investment, can rather paradoxically, lower investors participation and housing prices in equilibrium.