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Out-of-town Home Buyers and City Welfare

Jack Favilukis and Stijn Van Nieuwerburgh

No 12283, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The major cities of the world have attracted a flurry of out-of-town (OOT) home buyers. Such capital inflows affect housing affordability, the spatial distribution of residents, construction, labor income, wealth, and ultimately welfare. We develop a spatial equilibrium model of a city with substantial heterogeneity among residents. We calibrate the model to the New York and Vancouver metro areas. The observed increase in OOT purchases is associated with 1.1% (5.0%) higher house prices and a 0.1% (0.34%) welfare loss in New York (Vancouver). Taxing OOT buyers can turn welfare losses into gains when tax revenues finance a local public good.

Keywords: affordable housing; Dynamic spatial equilibrium; foreign investors; Gentrification; House Prices; property taxes (search for similar items in EconPapers)
JEL-codes: G11 G12 H41 H70 J61 R10 R20 R30 R40 R51 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-geo and nep-ure
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