Out-of-Town Home Buyers and City Welfare
60 Pages Posted: 24 Feb 2017 Last revised: 2 Aug 2017
Date Written: August 1, 2017
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
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