The political economy of housing supply: homeowners, workers, and voters

Ortalo-Magné, François and Prat, Andrea (2007) The political economy of housing supply: homeowners, workers, and voters. . Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

Equilibrium of the housing market depends on a complex set of interactions between: (1) individual location decisions; (2) individual housing investment; (3) collective decisions on urban growth. We embed these three elements in a model of a dynamic economy with two sources of friction: ill-de…ned property rights on future land development and uninsurable shocks a¤ecting labor productivity. We characterize the feedback between the households’ desire to invest in housing as a hedge against the risk of rent ‡uctuations and their support for supply restrictions once they own housing. The model generates an ine¢ ciently low supply of housing in equilibrium. The model also rationalizes the persistence of housing undersupply: the more restricted the initial housing supply, the smaller the city size selected by the voting process. We use the model to study the e¤ects of a number of policies and institutional changes.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk/
Additional Information:	© 2007 The Authors
Divisions:	STICERD Economics
Subjects:	J Political Science > JA Political science (General) H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HJ Public Finance
JEL classification:	R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R38 - Government Policies; Regulatory Policies
Date Deposited:	03 Mar 2008
Last Modified:	13 Sep 2024 20:05
URI:	http://eprints.lse.ac.uk/id/eprint/3678

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