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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. TE/2007/514. The Suntory Toyota International Centers for Economics and Related Disciplines, London School of Economics and Political Science, 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
Library of Congress subject classification: 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
Journal of Economic Literature Classification System: 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
Sets: Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Departments > Economics
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: TE/2007/514
Date Deposited: 03 Mar 2008
URL: http://eprints.lse.ac.uk/3678/

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