London house prices are power-law distributed

TL;DR

This paper demonstrates that house prices in several English cities follow a power-law distribution in their upper tails, revealing insights into wealth inequality and proposing a new inequality index based on Pareto exponents.

Contribution

It identifies power-law behavior in house price distributions across multiple cities and introduces a novel Housing Wealth Inequality index derived from Pareto exponents.

Findings

London's house prices exhibit a power-law tail similar to super-rich wealth distribution.

Power-law behavior is distinct from other distributions like lognormal or gamma.

The proposed index offers a new way to measure housing wealth inequality.

Abstract

We explore the house price distributions for the English cities of London, Manchester, Bristol, Newcastle, Birmingham and Leeds. We find Pareto (power law) behaviour in their upper tails, which is clearly distinct from lognormal and gamma distributions in the cases of London, Manchester and Newcastle. For London, the city with the lowest power, this is a striking match with that found in the wealth distribution of the super-rich. We propose an index of Housing Wealth Inequality based on the Pareto exponent and analogous to the Gini coefficient, and comment on its possible uses.