Abstract
Drawing on analogies between the housing and labor markets, housing economists now recognize the potential importance of vacancies in housing market adjustment. Rosen and Smith (1983, Amer. Econ. Rev. 73, 779–786) found that rent changes are related to deviations in the vacancy rate from the natural vacancy rate. Other empirical studies, in contrast, have found that raw vacancy rates bear little relation to rent movements. This paper develops a theoretical model with a Diamond-type random-matching mechanism, which attempts to reconcile these seemingly contradictory empirical findings.
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