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Who Wants Affordable Housing in Their Backyard? An Equilibrium Analysis of Low Income Property Development

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Listed:
  • Diamond, Rebecca

    (Stanford University)

  • McQuade, Tim

    (Stanford University)

Abstract

We estimate the spillovers of properties financed by the Low Income Housing Tax Credit (LIHTC) onto surrounding neighborhood residents. We nonparametrically estimate the impact of LIHTC development on nearby house prices by developing a new difference-in-differences style estimator which exploits smoothness in housing prices across geographic distance and time. We find LIHTC development helps revitalize low income neighborhoods, driving up house prices 6.5%, lowering crime rates, and attracting a more racially and income diverse population. LIHTC development in higher income, low minority areas leads to local house price declines of 2.5% and attracts lower income households. We link these housing price effects to homeowner and renter preferences by developing a generalized hedonic model. Our estimates indicate that an affordable housing development in a low-income area improves welfare by $23,000 per local homeowner and $6500 per local renter, with aggregate welfare benefits to society of $115 million. When viewed as a place-based policy, affordable housing appears to be a desirable way to invest in and revitalize low-income communities.

Suggested Citation

  • Diamond, Rebecca & McQuade, Tim, 2015. "Who Wants Affordable Housing in Their Backyard? An Equilibrium Analysis of Low Income Property Development," Research Papers 3329, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3329
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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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