The Political Economy of Housing Supply:Homeowners, Workers, and Voters

Francois Ortalo-Magne and Andrea Prat

STICERD - Theoretical Economics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

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 onurban growth. We embed these three elements in a model of a dynamic economy with twosources of friction: ill-de…ned property rights on future land development and uninsurableshocks 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 supportfor supply restrictions once they own housing. The model generates an ine¢ ciently lowsupply of housing in equilibrium. The model also rationalizes the persistence of housingundersupply: the more restricted the initial housing supply, the smaller the city size selectedby the voting process. We use the model to study the e¤ects of a number of policies andinstitutional changes.

Keywords: Housing Supply; Housing Demand; Regulatory Policies; Political Economy. (search for similar items in EconPapers)
JEL-codes: D72 R21 R31 R38 (search for similar items in EconPapers)
Date: 2007-01
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Citations: View citations in EconPapers (2)

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Working Paper: The political economy of housing supply: homeowners, workers, and voters (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:stitep:514

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