The Collegetown Housing Rush
In this blog post I will discuss the college town housing market. In a sense, the housing market in college town is very similar to the models we have looked at in class. For one, there is a finite list of potential buyers (students) and sellers (properties for rent). In addition, each buyer could assign a value to a specific property based on its proximity to campus, the condition of the property, the location on desirable streets such asCollege Ave.or Catherine.
However, in class we discussed raising prices stepwise until a perfect match was reached where each buyer was able to maximize their payoffs (value – price). Obviously this is not possible on such a large scale. However, I would think that over time the prices would have been raised to correlate with the values assigned by the average buyer. In theory this would lead to a perfect matching each year. To see this in action, look at housing listings on Craigslist (link at the bottom of the page). Note how prices vary with respect to location, number of bedrooms, and whether or not the property is an apartment or a house.
One thing that is not addressed by this model is the effect of time. When houses or apartments are put on the market in September of the previous year, everybody is trying to sign leases as soon as possible so nobody gets the house before them. One explanation is that there are fewer houses than there are buyers, but this cannot be true because each year everybody finds a place to live. Therefore, this means that a perfect matching is impossible because the prices are low enough and the payoffs are high enough that there are too many people interested in a finite number of properties. As much as it pains me to say this, I think that the prices of high-value properties should be raised so that we are closer to a perfect matching. Honestly, I am surprised that landlords haven’t clued in on this already started raising prices.
Obviously, in my analysis there are a few variables that I am overlooking. For example, groups wanting to live together in large houses would skew the market. Also, one flaw of applying this model to collegetown, is that most people do not have a set maximum price that they are willing to pay, but rather have a price range. This would lead to people competing to optimize their deal within their price range. Possibly this is what causes the rush to sign leases.
Finally, I attached a link to an article that describes the benefits of being a landlord in a college town. This article discusses the fact that demand is often higher than supply, driving up prices (and also contributing to the housing rush). It also talks about what factors affect the value that people assign to a property and how these values fluctuate with the economy.
Craigslist: http://ithaca.craigslist.org/search/apa?query=collegetown&srchType=A&minAsk=&maxAsk=&bedrooms=
Article: http://realestate.msn.com/article.aspx?cp-documentid=25321866&page=2
-rdg88