A Housing Market with Cournot Competition and a Third Housing Sector

Abstract

This paper integrates a non-profit third-housing sector (THS) into a housing market with Cournot competition. The paper analyses the indirect effects of a THS on the aggregate housing market, on a commercial housing supplier and on the market adaption of households not embraced by the THS. While beneficial for households included in the THS, a question arises related to the indirect effects of a THS. The paper argues for crowding-out and higher house prices in the commercial housing market in response to a THS expansion. In addition, a THS also affects the strategic behaviour of the commercial housing supplier. Compared to a conventional Cournot housing market, a fixed THS housing supply changes the market structure from one where the housing supply of different housing providers are alternative to one-another, to a market structure where housing supply is complementary.