Economics of Housing Market Segmentation

Over the years, economists have debated the extent to which the assumption of a single housing market in a city or region is reasonable. Some have argued that in estimating housing prices, the housing market should be stratified into a series of separate submarkets, divided by structure type, neighbourhood, and potentially race and ethnicity. Still, even to the extent that these submarkets are distinct, they are clearly related. Households exhibit some flexibility in their choices, and prices in one sector clearly affect demand in other sectors to some degree. The debate about segmentation is really about degree – about how large the cross-price elasticity is between different types of housing.