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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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  1. Dubin, Jeffrey A. & Kiewiet, Roderick D. & Noussair, Charles N., 1991. "Voting on Growth Control Measures: Preferences and Strategies," Working Papers 777, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Bertaud, Alain & Brueckner, Jan K., 2004. "Analyzing building height restrictions - predicted impacts, welfare costs, and a case study of Bangalore, India," Policy Research Working Paper Series 3290, The World Bank.
  3. Brueckner, Jan K., 1995. "Strategic control of growth in a system of cities," Journal of Public Economics, Elsevier, vol. 57(3), pages 393-416, July.
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Cited by:
  1. Christian A. L. Hilber & Frédéric Robert-Nicoud, 2010. "On the origins of land use regulations: theory and evidence from us metro areas," Working Papers 2010/33, Institut d'Economia de Barcelona (IEB).
  2. 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.).
  3. Guillaume POUYANNE (GREThA), 2008. "Economics of discontinuous urban development (In French)," Cahiers du GREThA 2008-07, Groupe de Recherche en Economie Théorique et Appliquée.

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