Social Science Seminar - Moving Costs and Residential Misallocation

Housing markets rely on residential mobility to allocate households efficiently across neighborhoods, yet U.S. homeowners face a large transaction cost of moving: a fixed realtor commission equal to 6% of the sale price. We study how these commissions distort residential sorting and generate misallocation within metropolitan areas. We develop and estimate a dynamic model of neighborhood choice with heterogeneous households and both fiscal and non-fiscal moving costs. The model is disciplined by rich microdata on within-metro mobility, household characteristics and neighborhood characteristics. We use it to quantify how realtor commissions shape migration decisions, household welfare, life-cycle exposure to local amenities, and demographic stratification across neighborhoods. Counterfactual reductions in commission rates reveal the extent to which transaction costs impede efficient sorting.