Citation

Discussion Paper Details

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Title: On the Political Economy of Urban Growth: Homeownership versus Affordability

Author(s): François Ortalo-Magné and Andrea Prat

Publication Date: February 2011

Keyword(s): housing, political economy and real estate

Programme Area(s): Public Economics

Abstract: We study the equilibrium properties of an overlapping-generation economy where agents choose where to locate, and how much housing to own, and city residents vote on the number of new building permits every period. Under-supply of housing persists in equilibrium under conditions we characterize. City residents invest in housing because they expect their investment to be protected by a majority of voters opposed to urban growth. They vote against growth because they have invested in local housing. This vicious cycle between ownership and urban growth generates a tension between the common housing policy objectives of affordability for all and homeownership for most. Homeownership subsidies increase resistance to urban growth. Capturing the value of new building permits and distributing the proceeds to residents may move the economy away from a welfare-dominated no-growth equilibrium.

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Bibliographic Reference

Ortalo-Magné, F and Prat, A. 2011. 'On the Political Economy of Urban Growth: Homeownership versus Affordability'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8243