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On the Political Economy of Urban Growth: Homeownership versus Affordability

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  • Ortalo-Magné, François
  • Prat, Andrea

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.

Suggested Citation

  • Ortalo-Magné, François & Prat, Andrea, 2011. "On the Political Economy of Urban Growth: Homeownership versus Affordability," CEPR Discussion Papers 8243, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8243
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Pernicious housing equilibria
      by Eric Crampton in Offsetting Behaviour on 2014-01-28 02:42:00

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    Cited by:

    1. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2013. "Do political parties matter for local land use policies?," Journal of Urban Economics, Elsevier, vol. 78(C), pages 42-56.
    2. Christian A.L. Hilber & Jan Rouwendal & Wouter Vermeulen, 2014. "Local Economic Conditions and the Nature of New Housing Supply," Tinbergen Institute Discussion Papers 14-120/VIII, Tinbergen Institute.
    3. Gary-Bobo, Robert J. & Nur, Jamil, 2015. "Housing, Capital Taxation and Bequests in a Simple OLG Model," CEPR Discussion Papers 10774, C.E.P.R. Discussion Papers.
    4. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2012. "Lobbying, political competition, and local land supply: Recent evidence from Spain," Journal of Public Economics, Elsevier, vol. 96(1), pages 10-19.
    5. Lena Edlund & Cecilia Machado & Maria Sviatschi, 2016. "Bright Minds, Big Rent: Gentrification and the Rising Returns to Skill," Working Papers 16-36, Center for Economic Studies, U.S. Census Bureau.
    6. Gyourko, Joseph & Molloy, Raven, 2015. "Regulation and Housing Supply," Handbook of Regional and Urban Economics, Elsevier.
    7. Lena Edlund & Cecilia Machado & Maria Micaela Sviatschi, 2015. "Bright Minds, Big Rent: Gentrification and the Rising Returns to Skill," NBER Working Papers 21729, National Bureau of Economic Research, Inc.
    8. Joseph Gyourko & Raven Molloy, 2014. "Regulation and Housing Supply," NBER Working Papers 20536, National Bureau of Economic Research, Inc.
    9. Martin, Thorsten, 2017. "You shall not build! (until tomorrow) [:] Electoral cycles and housing policies in Germany," MPRA Paper 78998, University Library of Munich, Germany.
    10. Leung, Charles Ka Yui & Tang, Edward Chi Ho, 2014. "Availability, Affordability and Volatility: the case of Hong Kong Housing Market," MPRA Paper 58770, University Library of Munich, Germany.
    11. Duranton, Gilles & Puga, Diego, 2015. "Urban Land Use," Handbook of Regional and Urban Economics, Elsevier.
    12. Devin Bunten, 2017. "Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation," Finance and Economics Discussion Series 2017-064, Board of Governors of the Federal Reserve System (U.S.).
    13. Charles Ka Yui Leung, 2015. "Availability, Affordability and Volatility: The Case of the Hong Kong Housing Market," International Real Estate Review, Asian Real Estate Society, vol. 18(3), pages 383-428.
    14. repec:ces:ifodic:v:11:y:2013:i:2:p:19094733 is not listed on IDEAS
    15. Stephen Coate, 2011. "Property Taxation, Zoning, and Efficiency: A Dynamic Analysis," NBER Working Papers 17145, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    housing; political economy; real estate;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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