The Political Economy of Housing Supply: Homeowners, Workers, and Voters

42 Pages Posted: 16 Jul 2008

See all articles by François Ortalo-Magné

François Ortalo-Magné

Wisconsin School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Andrea Prat

Centre for Economic Policy Research (CEPR); Columbia Business School - Finance and Economics

Date Written: January 2007

Abstract

Equilibrium of the housing market depends on a complex set of interactions between: (1) individual location decisions; (2) individual housing investment; (3) collective decisions on urban growth. We embed these three elements in a model of a dynamic economy with two sources of friction: ill-defined property rights on future land development and uninsurable shocks affecting labor productivity. We characterize the feedback between the households desire to invest in housing as a hedge against the risk of rent fluctuations and their support for supply restrictions once they own housing. The model generates an inefficiently low supply of housing in equilibrium. The model also rationalizes the persistence of housing undersupply: the more restricted the initial housing supply, the smaller the city size selected by the voting process. We use the model to study the effects of a number of policies and institutional changes.

JEL Classification: R31, R21, R38, D72

Suggested Citation

Ortalo-Magne, Francois and Prat, Andrea, The Political Economy of Housing Supply: Homeowners, Workers, and Voters (January 2007). LSE STICERD Research Paper No. TE514. Available at SSRN: https://ssrn.com/abstract=1161007

Francois Ortalo-Magne (Contact Author)

Wisconsin School of Business ( email )

4300 Grainger Hall
975 University Avenue
Madison, WI 53706-1323
United States
608-262-7867 (Phone)
608-262-7867 (Fax)

HOME PAGE: http://francois.marginalq.com

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Andrea Prat

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

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