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Out-of-Town Home Buyers and City Welfare

60 Pages Posted: 24 Feb 2017 Last revised: 2 Aug 2017

Jack Y Favilukis

University of British Columbia (UBC) - Division of Finance

Stijn Van Nieuwerburgh

New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: August 1, 2017

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.

Keywords: Dynamic Spatial Equilibrium, House Prices, Foreign Investors, Affordable Housing, Gentrification, Housing Taxation

JEL Classification: R10, R20, R30, R40, R51, G11, G12, H41, H70, J61

Suggested Citation

Favilukis, Jack Y and Van Nieuwerburgh, Stijn, Out-of-Town Home Buyers and City Welfare (August 1, 2017). Available at SSRN: https://ssrn.com/abstract=2922230 or http://dx.doi.org/10.2139/ssrn.2922230

Jack Favilukis

University of British Columbia (UBC) - Division of Finance ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Stijn Van Nieuwerburgh (Contact Author)

New York University Stern School of Business, Department of Finance ( email )

44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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