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The Political Economy of Housing Supply:Homeowners, Workers, and Voters

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  • Francois Ortalo-Magne
  • Andrea Prat

Abstract

Equilibrium of the housing market depends on a complex set of interactions between: (1)individual location decisions; (2) individual housing investment; (3) collective decisions onurban growth. We embed these three elements in a model of a dynamic economy with twosources of friction: ill-de…ned property rights on future land development and uninsurableshocks a¤ecting labor productivity. We characterize the feedback between the households’desire to invest in housing as a hedge against the risk of rent ‡uctuations and their supportfor supply restrictions once they own housing. The model generates an ine¢ ciently lowsupply of housing in equilibrium. The model also rationalizes the persistence of housingundersupply: the more restricted the initial housing supply, the smaller the city size selectedby the voting process. We use the model to study the e¤ects of a number of policies andinstitutional changes.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number /2007/514.

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Date of creation: Jan 2007
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Handle: RePEc:cep:stitep:/2007/514

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: Housing Supply; Housing Demand; Regulatory Policies; Political Economy.;

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Cited by:
  1. Guillaume POUYANNE (GREThA), 2008. "Economics of discontinuous urban development (In French)," Cahiers du GREThA 2008-07, Groupe de Recherche en Economie Théorique et Appliquée.
  2. Hilber, Christian A. L. & Robert-Nicoud, Frédéric, 2012. "On the Origins of Land Use Regulations: Theory and Evidence from US Metro Areas," CEPR Discussion Papers 9206, C.E.P.R. Discussion Papers.
  3. Byron F. Lutz, 2009. "Fiscal amenities, school finance reform and the supply side of the Tiebout market," Finance and Economics Discussion Series 2009-18, Board of Governors of the Federal Reserve System (U.S.).

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