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On the Political Economy of Urban Growth: Homeownership versus Affordability

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Listed author(s):
  • 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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8243.

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Date of creation: Feb 2011
Handle: RePEc:cpr:ceprdp:8243
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Keywords: housing; political economy; real estate;

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Find related papers by 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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  1. Todd Sinai & Nicholas Souleles, 2013. "Can Owning a Home Hedge the Risk of Moving?," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 282-312, May.
  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. Ozanne, Larry & Thibodeau, Thomas, 1983. "Explaining metropolitan housing price differences," Journal of Urban Economics, Elsevier, vol. 13(1), pages 51-66, January.
  4. Stephen H. Shore & Todd Sinai, 2010. "Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 408-424, May.
  5. Jeffrey A. Dubin & D. Roderick Kiewiet & Charles Noussair, 1992. "Voting On Growth Control Measures: Preferences And Strategies," Economics and Politics, Wiley Blackwell, vol. 4(2), pages 191-213, 07.
  6. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-858, August.
  7. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
  8. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 763-789.
  9. John M. Quigley & Steven Raphael, 2005. "Regulation and the High Cost of Housing in California," American Economic Review, American Economic Association, vol. 95(2), pages 323-328, May.
  10. Brueckner, Jan K. & Lai, Fu-Chuan, 1996. "Urban growth controls with resident landowners," Regional Science and Urban Economics, Elsevier, vol. 26(2), pages 125-143, April.
  11. Calabrese, Stephen & Epple, Dennis & Romano, Richard, 2007. "On the political economy of zoning," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 25-49, February.
  12. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Land use regulation and new construction," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 639-662, December.
  13. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, July.
  14. 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.
  15. Glaeser, Edward L & Gyourko, Joseph & Saks, Raven, 2005. "Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 331-369, October.
  16. Rose, Louis A., 1989. "Urban land supply: Natural and contrived restrictions," Journal of Urban Economics, Elsevier, vol. 25(3), pages 325-345, May.
  17. James A. Thorson, 1996. "An Examination of the Monopoly Zoning Hypothesis," Land Economics, University of Wisconsin Press, vol. 72(1), pages 43-55.
  18. Wheaton, William C., 1998. "Land Use and Density in Cities with Congestion," Journal of Urban Economics, Elsevier, vol. 43(2), pages 258-272, March.
  19. Davidoff, Thomas, 2006. "Labor income, housing prices, and homeownership," Journal of Urban Economics, Elsevier, vol. 59(2), pages 209-235, March.
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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 2014-01-27 20:42:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:

  1. 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.
  2. 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.
  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. Edlund, Lena & Machado, Cecilia & Sviatschi, Maria, 2015. "Bright Minds, Big Rent: Gentrification and the Rising Returns to Skill," IZA Discussion Papers 9502, Institute for the Study of Labor (IZA).
  8. 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.
  9. Joseph Gyourko & Raven Molloy, 2014. "Regulation and Housing Supply," NBER Working Papers 20536, National Bureau of Economic Research, Inc.
  10. Martin, Thorsten, 2017. "You shall not build! (until tomorrow) [:] Electoral cycles and housing policies in Germany," MPRA Paper 78998, University Library of Munich, Germany.
  11. 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.
  12. Duranton, Gilles & Puga, Diego, 2015. "Urban Land Use," Handbook of Regional and Urban Economics, Elsevier.
  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. Stephen Coate, 2011. "Property Taxation, Zoning, and Efficiency: A Dynamic Analysis," NBER Working Papers 17145, National Bureau of Economic Research, Inc.
  15. Lena Edlund & Cecilia Machado & Maria Sviatschi, 2016. "Bright Minds, Big Rent: Gentrification and the Rising Returns to Skill," Working Papers 16-36r, Center for Economic Studies, U.S. Census Bureau.

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