Housing Affordability

Paper Session

Sunday, Jan. 8, 2017 1:00 PM – 3:00 PM

Sheraton Grand Chicago, Huron
Hosted By: American Real Estate and Urban Economics Association & American Economic Association
  • Chair: Daniel McMillen, University of Illinois-Urbana-Champaign

Information Asymmetry, Regulations, and Equilibrium Outcomes: Theory and Evidence from the Housing Rental Market

Moussa Diop
,
University of Wisconsin-Madison
Brent Ambrose
,
Pennsylvania State University

Abstract

Following the financial crisis, rental markets in the U.S. remain tight. It is unclear, however, whether the shortfall in rental housing supply is transitory or structural. We explore the role of information asymmetry and regulations on equilibrium outcomes in rental markets in order to document the role of government regulations in reducing rental supply. We show that while landlords price the cost of regulations into rent, they also invest in tenant screening as regulation costs soar, restricting access to privately-supplied rental housing. Although the additional tenant screening is understandable, its magnitude is somewhat surprising.

The Cost of Economic Mobility

Ingrid Ellen
,
New York University
Davin Reed
,
New York Universtiy
Michael Suher
,
New York University

Abstract

In the past decade and a half, households with “low skills,” defined as lacking a college education, have seen incomes decline in almost all U.S. cities. At the same time, demand for high-skill workers, those with a college degree, has been increasing, particularly in high cost cit-ies. This has led to substantial income inequality in these high cost cities. It has also raised hous-ing costs even further (Moretti 2011; Diamond, 2016). Our study will analyze how the well-being of low-skill households in these high and rising cost cities has been impacted by the in-creased demand for high-skill workers.

Housing Inequality

David Albouy
,
University of Illinois-Urbana-Champaign
Mike Zabek
,
University of Michigan

Abstract

Inequality in U.S. housing prices and rents both declined in the mid-20th century, even as home-ownership rates rose. Subsequently, housing-price inequality has risen to pre-War levels, while rent inequality has risen less. Combining both measures, we see inequality in housing consumption equivalents mirroring patterns in income across both space and time, according to an income elasticity of housing demand just below one. These patterns occur mainly within cities, and are not explained by observed changes in dwelling characteristics or locations. Instead, recent increases in housing inequality are driven most by changes in the relative value of locations, seen especially through land.

Difficult Development Areas and the Supply of Low-Income Housing Tax Credit

Michael Eriksen
,
University of Cincinnati

Abstract

The designation of a metropolitan area as a Difficult Development Area (DDA) by the U.S. Government increases the per-unit generosity of the subsidy that private developers receive for supplying housing units under the Low-Income Housing Tax Credit (LIHTC) program. The top 20% of metropolitan areas ranked by the ratio of rent divided by household income receive the designation, and a resulting 30% increase in subsidy for developers. Regression discontinuity (RD) methods are used to compare how DDA designation affects the quantity, composition, and location of LIHTC units based on the 20% threshold. Increasing the generosity of the subsidy on a per-unit basis through DDA designation results in a 40% decrease in LIHTC units constructed in the metropolitan area. DDA designation is also found to increase competition amongst developers to receive the subsidy and results in LIHTC projects being less likely to be located in low-income neighborhoods.
Discussant(s)
Stuart Rosenthal
,
Syracuse University
Nathaniel Baum-Snow
,
Brown University
Jan K. Brueckner
,
University of California-Irvine
Randall Walsh
,
University of Pittsburgh
JEL Classifications
  • R2 - Household Analysis
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location