A SEARCH THEORETIC APPROACH TO THE EFFECTS OF THE BUILD-TO-ORDER MARKET ON MATCHING, PRICES AND PRICE DISPERSION IN THE RESALE HOUSING MARKET IN SINGAPORE.

Abstract

We construct a housing search model by using Albrecht’s (2007) opportunistic matching as the baseline model in which buyers and sellers enter the market as relaxed agents with a higher value of search. If they continue to stay in the market, they will overtime become desperate and have a relatively lower value of search. We extend the model to then include access to subsidized public housing through the government’s Build-To-Order homes. We do this to characterize policy implications on equilibrium matching configurations, prices and price dispersion on the private resale housing market. The model predicts that a higher arrival rate of successful BTO matches increases the value of search for the desperate buyer more than relaxed buyer and reduces price dispersion but lowering the price of BTO flats increases the value of search for the relaxed buyer more than the desperate buyer and worsens price dispersion.