Working Paper: CEPR ID: DP8243
Authors: Francois Ortalo-Magné; Andrea Prat
Abstract: We study the equilibrium properties of an overlapping-generation economy where agents choose where to locate, and how much housing to own, and city residents vote on the number of new building permits every period. Under-supply of housing persists in equilibrium under conditions we characterize. City residents invest in housing because they expect their investment to be protected by a majority of voters opposed to urban growth. They vote against growth because they have invested in local housing. This vicious cycle between ownership and urban growth generates a tension between the common housing policy objectives of affordability for all and homeownership for most. Homeownership subsidies increase resistance to urban growth. Capturing the value of new building permits and distributing the proceeds to residents may move the economy away from a welfare-dominated no-growth equilibrium.
Keywords: housing; political economy; real estate
JEL Codes: R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Homeownership (R21) | Voting Behavior (D72) |
| Voting Behavior (D72) | Urban Growth (R11) |
| Homeownership (R21) | Inefficiently Low Housing Supply (R31) |
| Homeownership Subsidies (R21) | Resistance to Urban Growth (R52) |
| Resistance to Urban Growth (R52) | Inefficiently Low Housing Supply (R31) |
| Homeownership Premium (R21) | Voting Behavior of Median Voter (D72) |
| Voting Behavior of Median Voter (D72) | Urban Growth (R11) |