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American Economic Journal: Microeconomics: Vol. 6 No. 1 (February 2014)

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On the Political Economy of Urban Growth: Homeownership versus Affordability

Article Citation

Ortalo-Magné, François, and Andrea Prat. 2014. "On the Political Economy of Urban Growth: Homeownership versus Affordability." American Economic Journal: Microeconomics, 6(1): 154-81.

DOI: 10.1257/mic.6.1.154

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. Undersupply 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 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.

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Authors

Ortalo-Magné, François (U WI)
Prat, Andrea (Columbia U)

JEL Classifications

D72: Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
R11: Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
R21: Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
R23: Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
R31: Housing Supply and Markets
R38: Production Analysis and Firm Location: Government Policy

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