Residential Location Models: Analyzing Segregation, Borrowing Constraints, and Policy Implications

This chapter explores residential location models through a comprehensive review of the literature, key facts, theoretical frameworks, estimation methods, and simulation techniques. It focuses on the factors driving residential segregation using a standard individual discrete choice model, specifically a nested logit framework. This model incorporates household preferences for local amenities, dwelling types, and homeownership. The analysis is extended by introducing borrowing constraints that restrict some households' ability to purchase property. To illustrate, the framework is applied to the Paris region. By relaxing borrowing constraints, we simulate a hypothetical redistribution of socio-demographic characteristics across the region and demonstrate how this tool can be employed for policy analysis. A comparison of actual and simulated distributions reveals that easing credit constraints encourages households to relocate farther from the city center. However, if only poor households benefit, they are less likely to integrate with wealthier households, thereby intensifying segregation. This finding highlights those policies designed to support low-income households might inadvertently increase segregation citywide, necessitating careful re-evaluation.