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Housing Supply Elasticity and Rent Extraction by State and Local Governments

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  • Rebecca Diamond

Abstract

Governments may extract rent from private citizens by inflating taxes and spending on projects benefiting special interests. Using a spatial equilibrium model, I show that less elastic housing supplies increase governments' abilities to extract rents. Inelastic housing supply, driven by exogenous variation in local topography, raises local governments' tax revenues and causes citizens to combat rent seeking by enacting laws limiting the power of elected officials. I find that public sector workers, one of the largest government special interests, capture a share of these rents through increased compensation when collective bargaining is legal or through corruption when collective bargaining is outlawed.

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  • Rebecca Diamond, 2017. "Housing Supply Elasticity and Rent Extraction by State and Local Governments," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 74-111, February.
    • Handle: RePEc:aea:aejpol:v:9:y:2017:i:1:p:74-111
    Note: DOI: 10.1257/pol.20150320
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    1. Brian Asquith & Evan Mast & Davin Reed, 2019. "Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas," Upjohn Working Papers 19-316, W.E. Upjohn Institute for Employment Research.
    2. J. Vernon Henderson & Matthew A. Turner, 2020. "Urbanization in the Developing World: Too Early or Too Slow?," Journal of Economic Perspectives, American Economic Association, vol. 34(3), pages 150-173, Summer.
    3. Jan K. Brueckner & Matthew E. Kahn & Gary C. Lin, 2023. "A New Spatial Hedonic Equilibrium in the Emerging Work-from-Home Economy?," American Economic Journal: Applied Economics, American Economic Association, vol. 15(2), pages 285-319, April.
    4. Ruben Enikolopov, 2011. "Are Bureaucrats Really Paid Like Bureaucrats?," Working Papers w0165, Center for Economic and Financial Research (CEFIR).
    5. Chang-Tai Hsieh & Enrico Moretti, 2019. "Housing Constraints and Spatial Misallocation," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(2), pages 1-39, April.
    6. Simon B chler, Maximilian v. Ehrlich, 2021. "Quantifying Land Use Regulation and its Determinants - Ease of Residential Development across Swiss Municipalities," Diskussionsschriften credresearchpaper32, Universitaet Bern, Departement Volkswirtschaft - CRED.
    7. Wenquan Liang & Ran Song & Christopher Timmins, 2020. "Frictional Sorting," NBER Working Papers 27643, National Bureau of Economic Research, Inc.
    8. Yashar Blouri, Simon B chler, Olivier Sch ni, 2019. "The Geography of Housing Subsidies," Diskussionsschriften credresearchpaper25, Universitaet Bern, Departement Volkswirtschaft - CRED.
    9. Geschwind, Stephan & Roesel, Felix, 2022. "Taxation under direct democracy," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 536-554.
    10. Brülhart, Marius & Danton, Jayson & Parchet, Raphael & Schläpfer, Jörg, 2022. "Who Bears the Burden of Local Taxes?," CEPR Discussion Papers 15826, C.E.P.R. Discussion Papers.
    11. Wataru Takahashi, 2021. "Population Mobility Structural Analysis and Population Estimation Using a Quantitative Spatial Model," Discussion papers ron339, Policy Research Institute, Ministry of Finance Japan.
    12. Guedes, Ricardo & Iachan, Felipe S. & Sant’Anna, Marcelo, 2023. "Housing supply in the presence of informality," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    13. Matthew Davis & Fernando V. Ferreira, 2017. "Housing Disease and Public School Finances," NBER Working Papers 24140, National Bureau of Economic Research, Inc.
    14. Davis, Matthew & Ferreira, Fernando, 2022. "Housing disease and public school finances," Economics of Education Review, Elsevier, vol. 88(C).
    15. Tianzheng Zhang & Yingxiang Zeng & Yingjie Zhang & Yan Song & Hongxun Li, 2020. "The Heterogenous Demand for Urban Parks between Home Buyers and Renters: Evidence from Beijing," Sustainability, MDPI, vol. 12(21), pages 1-16, October.
    16. Simon C Büchler & Dongxiao Niu & Anne K Thompson & Siqi Zheng, 2024. "The impact of human capital and housing supply on urban growth," Urban Studies, Urban Studies Journal Limited, vol. 61(2), pages 214-230, February.
    17. David S. Bieri & Casey J. Dawkins, 2019. "Amenities, affordability, and housing vouchers," Journal of Regional Science, Wiley Blackwell, vol. 59(1), pages 56-82, January.
    18. Büchler, Simon & Ehrlich, Maximilian v. & Schöni, Olivier, 2021. "The amplifying effect of capitalization rates on housing supply," Journal of Urban Economics, Elsevier, vol. 126(C).
    19. Tianzheng Zhang & Yingxiang Zeng & Yingjie Zhang & Yan Song & Hongxun Li, 2020. "Dynamic and Heterogeneous Demand for Urban Green Space by Urban Residents: Evidence from the Cities in China," Sustainability, MDPI, vol. 12(22), pages 1-15, November.

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    More about this item

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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