On the Political Economy of Urban Growth: Homeownership versus Affordability

Ortalo-Magné, François and Andrea Prat
Authors registered in the RePEc Author Service: Francois Ortalo-Magne

No 8243, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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. Under-supply 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 of voters 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. Homeownership subsidies increase resistance to urban growth. Capturing the value of new building permits and distributing the proceeds to residents may move the economy away from a welfare-dominated no-growth equilibrium.

Keywords: Housing; Political economy; Real estate (search for similar items in EconPapers)
JEL-codes: R31 (search for similar items in EconPapers)
Date: 2011-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Journal Article: On the Political Economy of Urban Growth: Homeownership versus Affordability (2014)
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