Sustainable Housing Policy

Deeksha Gupta and Itay Goldstein
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Deeksha Gupta: Wharton Business School
Itay Goldstein: University of Pennsylvania

No 607, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Investment in housing is often thought of as an important tool for household wealth accumulation and for stimulating economic activity. As such, many policies aim to promote investment in housing and support housing prices. However, empirical research on the effect of such policies on wealth accumulation and investment in the economy is mixed. In this paper, we develop a comprehensive framework for studying the effect of housing investment on household wealth accumulation, the value of policies subsidizing investment in housing and the form that such policies should take. We find that when households are financially constrained, the price of housing generates externalities on investment in the economy and subsequently on household wealth accumulation. At times, it can be optimal to decrease the price of housing rather than to support high housing prices. Contrary to standard economic theory, we find that subsidizing the demand-side of the housing market and the supply-side of the market have different effects on welfare. When the return from real estate investment is high, a combination of subsidies for construction companies and taxes on purchases of houses can be optimal.

Date: 2016
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:607

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