Mismatch in the Housing Markets
https://www.trulia.com/research/mismatch-q317/
When we think of markets, we usually think about buyers and sellers with prices doing the work of connecting them. This basically describes commodity markets, things like sugar and iron ore—goods that are not differentiated. Houses’ and our needs for them are all unique. This is why standard economic theory has difficulties in explaining the operation of housing markets. The assumption is that housing is a commodity market and is in fact a matching market.
As what we’ve discussed in class, matching markets are markets in which people seek to be paired with someone or something. The criteria for matching is usually highly specific and requiring reciprocity. This often makes finding a match difficult and costly. Moreover, since people are particular about what they want from housing, this makes finding their perfect match difficult and expensive. For example, searching for a house to buy can take a long time and a lot of effort. Vendors have to pay a lot to advertise or engage real estate agents as matchmakers. The issue of searching and high costs implies that many matching markets do not always work well. However, the internet and digital technology are making a huge difference. For example, Airbnb as a matching market platform has made it a lot easier and cheaper to find a holiday rental. One of the ways Airbnb achieves this is by signing people up as members. In this way, it can create pools of potential matches and narrow the search. It can also communicate with people at any time at almost no cost.
If we think about public housing, the public housing authority sets criteria for whom they want to match to. Vulnerable households are looking to match to an affordable property that provides security of tenure. Social tenants who want to swap their home are trying to match with another social housing tenant. However, in many cases, they are unable to find a match. In terms of the private rental, landlords want to match to higher income households even if they are not charging higher rent. This means there are too few affordable houses available for lower-income households. The only matches they can make are to more expensive properties, therefore putting them in housing stress.