Housing-Market Equilibrium, Resident Selection, and the Endogeneity of Local Income

A local housing market is also a spatial allocation mechanism: the equilibrium housing cost affects not only the price of occupying a location but also the composition of households able to occupy it. This paper studies the information consequence of that equilibrium selection. In a constrained local housing market with heterogeneous resident demand and positive turnover, an outward housing-demand shock raises the clearing price. When lower-purchasing-capacity resident demand is more price-sensitive than higher-purchasing-capacity resident demand, current resident allocation shifts toward the latter group; turnover then carries that allocation difference into the resident stock, raising observed resident income even when within-group incomes do not change. The model therefore characterizes observed resident income as partly an equilibrium outcome. The main result shows that the selection-induced response of observed resident income and structural housing-price responsiveness to locally anchored purchasing capacity depend on different combinations of demand primitives. Consequently, the same post-selection price–resident-income relationship can coexist with different structural local-income responsiveness. Observed local price–income comovement therefore need not identify structural price anchoring to the purchasing capacity of a compositionally stable resident population. Non-local housing demand provides a transparent initiating shock, while an affordability implication follows as a secondary corollary.