Working Paper: CEPR ID: DP13758
Authors: Stijn Van Nieuwerburgh; Jack Favilukis; Pierre Mabille
Abstract: Housing affordability is the main policy challenge for many large cities in the world. Zoning changes, rent control, housing vouchers, and tax credits are the main levers employed by policy makers. But how effective are they at combatting the affordability crisis? We build a new framework to evaluate the effect of these policies on the well-being of its citizens. It endogenizes house prices, rents, construction, labor supply, output, income and wealth inequality, as well as the location decisions of households. Its main novel features are risk, risk aversion, and incomplete risk-sharing. We calibrate the model to the New York MSA, incorporating current zoning and affordable housing policies. Housing affordability policies carry substantial insurance value but cause misallocation in labor and housing markets. Housing affordability policies that enhance access to this insurance especially for the neediest households create large net welfare gains.
Keywords: dynamic spatial equilibrium; house prices; affordable housing; rent control; zoning; gentrification; development; housing vouchers; tax credits
JEL Codes: R10; R20; R30; R40; R51; G11; G12; H41; H70; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing affordability policies (R28) | access to insurance (G52) |
| access to insurance (G52) | net welfare gains (D69) |
| tightening income qualification requirements for affordable housing (R21) | improved access to insurance (G52) |
| improved access to insurance (G52) | welfare gain of 3.59% in consumption equivalent units (D69) |
| increasing the share of affordable housing mandated from developers (R31) | welfare improvements (I38) |
| welfare improvements (I38) | access to affordable units (R21) |