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. Undersupply 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 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.

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Citation

Ortalo-Magne, Francois, and Andrea Prat. "On the Political Economy of Urban Growth: Homeownership versus Affordability." American Economic Journal: Microeconomics 6, no. 1 (February 2014): 154-81.

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