Does space matter? The case of the housing expenditure cap

Yifan Gong and Charles Leung

Regional Science and Urban Economics, 2024, vol. 104, issue C

Abstract: In our evaluation of the housing expenditure share cap, a macroprudential policy, we discover the importance of modeling space. In a spatial model, the equilibrium features income-based spatial sorting where a household competes with households of their own income type for residential space. As a result, the cap policy causes a larger drop in housing demand, and consequently a larger reduction in equilibrium housing prices, for constrained low-income families than for unconstrained high-income families. Depending on the assumption on households’ preference, this mechanism leads to a smaller increase or even a modest decrease in welfare inequality in a spatial model than in a spaceless model.

Keywords: Housing expenditure share; Monocentric model of a city; Spatial sorting; Welfare inequality (search for similar items in EconPapers)
JEL-codes: D04 R20 R30 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Does Space Matter? The Case of the Housing Expenditure Cap (2023)
Working Paper: Does space natter? The case of the housing expenditure cap (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:104:y:2024:i:c:s0166046223001096

DOI: 10.1016/j.regsciurbeco.2023.103974

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