The Externality of Public Housing Projects: The Case of the Mehr Housing Project in Iran

Public housing projects are hotly debated, especially due to their impact on neighboring properties. This impact is theoretically ambiguous; public housing projects could enhance local amenities through agglomeration externalities or direct government provision, however, the concentration of low-income households could trigger negative spillovers. The expansion of the housing stock is also an important channel for large projects. While the impact of public housing projects is wellstudied in developed countries, to the best of our knowledge, there is no rigorous empirical study on developing countries. In this paper, we study a large public housing project known as the Mehr housing project in Iran that facilitated the construction of two million affordable apartments, making it the largest public housing project in the world. We use the exact delivery date of Mehr units and their postal region to set up a difference-in-differences strategy. Using the universe of house transactions for 19 large cities in Iran between 2010 and mid-2019, we compare house price changes in Mehr postal regions to non-Mehr ones before and after Mehr units were delivered. Our results show that Mehr units lowered house prices in the same postal region by around 11 percent (significant at five percent). This effect is robust to controlling for city by time fixed effects, differential trends for suburbs, and regions with higher initial property values. We also provide suggestive evidence on the role of disamenity effects by looking at the heterogeneity of results across different house types and cities over time. Finally, we find a significant positive effect of available schools in the Mehr postal region that fits well with the amenity story.