Can More Housing Supply Solve the Affordability Crisis? Evidence from a Neighborhood Choice Model

34 Pages Posted: 6 Jun 2018 Last revised: 29 Apr 2020

See all articles by Elliot Anenberg

Elliot Anenberg

Board of Governors of the Federal Reserve System

Edward Kung

California State University, Northridge - David Nazarian College of Business and Economics

Date Written: 2018-05-15

Abstract

We estimate a neighborhood choice model using 2014 American Community Survey data to investigate the degree to which new housing supply can improve housing affordability. In the model, equilibrium rental rates are determined so that the number of households choosing each neighborhood is equal to the number of housing units in each neighborhood. We use the estimated model to simulate how rental rates would respond to an exogenous increase in the number of housing units in a neighborhood. We find that the rent elasticity is low, and thus marginal reductions in supply constraints alone are unlikely to meaningfully reduce rent burdens. The reason for this result appears to be that rental rates are more closely determined by the level of amenities in a neighborhood—as in a Rosen-Roback spatial equilibrium framework—than by the supply of housing.

Keywords: Housing affordability, Housing supply, Neighborhood choice

JEL Classification: R21, R31

Suggested Citation

Anenberg, Elliot and Kung, Edward, Can More Housing Supply Solve the Affordability Crisis? Evidence from a Neighborhood Choice Model (2018-05-15). FEDS Working Paper No. 2018-035, Available at SSRN: https://ssrn.com/abstract=3187704 or http://dx.doi.org/10.17016/FEDS.2018.035

Elliot Anenberg (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Edward Kung

California State University, Northridge - David Nazarian College of Business and Economics ( email )

Northridge, CA 91330
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
89
Abstract Views
574
rank
314,522
PlumX Metrics