Discussion Paper Details

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Title: Out-of-town Home Buyers and City Welfare

Author(s): Jack Favilukis and Stijn van Nieuwerburgh

Publication Date: September 2017

Keyword(s): affordable housing, Dynamic spatial equilibrium, foreign investors, Gentrification, House Prices and property taxes

Programme Area(s): Financial Economics, Macroeconomics and Growth and Public Economics

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.

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Bibliographic Reference

Favilukis, J and van Nieuwerburgh, S. 2017. 'Out-of-town Home Buyers and City Welfare'. London, Centre for Economic Policy Research.