EconPapers    
Economics at your fingertips  
 

Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access

Nicolas Coulombel ()

Post-Print from HAL

Abstract: This paper compares the effects of two prudential measures in housing access on the solvency and welfare of households, with specific attention to transport costs as well as equity issues. A widespread regulation is to cap the housing expense ratio (defined as the share of income spent on the rent or the monthly loan installment), typically at one third of income or so. Using the canonical model of urban economics, the monocentric model, we show that capping the housing expense ratio drives low-income households to move away from the city center toward suburban areas, where they face high transport costs. This unintended eviction effect lowers the efficiency of this prudential measure as far as household solvency is concerned. Capping the overall housing plus transport expense ratio precludes this eviction mechanism and unequivocally proves more efficient in protecting household solvency, including from strong variations in transport prices such as during fuel price spikes. Additionally, by limiting the bidding capacity of households, both prudential measures lead to a decrease in housing prices. This tends to improve the welfare of households, firstly of high-income ones (as they are less affected by the constraints). The effect on housing prices is stronger when capping the housing expense ratio, so that households, again firstly high-income ones, are typically better off (in terms of welfare) than when one caps the housing plus transport expense ratio, however. Considering the primary objective of prudential measures-protecting the solvency of households, firstly of low-income ones-our findings call for the inclusion of transport costs within prudential ratios, as well as indicators of housing affordability. This would incidentally raise public awareness with regard to the high costs of private cars, which are often underestimated. A short numerical application to the Paris region corroborates that a policy change from housing prudential ratios toward comprehensive housing plus transport prudential ratios might significantly improve the situation of low-income households.

Keywords: housing; transport; budget constraints; monocentric model (search for similar items in EconPapers)
Date: 2018-07
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01712822
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Published in Transport Policy, Elsevier, 2018, 65, pp.89-105. ⟨10.1016/j.tranpol.2017.04.011⟩

Downloads: (external link)
https://hal.archives-ouvertes.fr/hal-01712822/document (application/pdf)

Related works:
Journal Article: Why housing and transport costs should always be considered together: A monocentric analysis of prudential measures in housing access (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01712822

DOI: 10.1016/j.tranpol.2017.04.011

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2020-03-29
Handle: RePEc:hal:journl:hal-01712822