Does Space Matter? The Case of the Housing Expenditure Cap

45 Pages Posted: 19 Oct 2023

See all articles by Yifan Gong

Yifan Gong

University of Nebraska at Lincoln

Charles K. Leung

City University of Hong Kong

Multiple version iconThere are 2 versions of this paper

Date Written: September 25, 2023

Abstract

In our evaluation of the housing expenditure share cap, a macroprudential policy, we discover the importance of modeling space. The spatial considerations allow households to sort into segmented housing markets based on income. Our model generates the observed negative relationship between housing expenditure share and income. More importantly, the cap policy causes a more considerable reduction in housing costs for low-income families than for high-income families in a spatial model. Depending on the assumption of households' preference, this mechanism leads to a minor increase or even a modest decrease in welfare inequality in a spatial model than in a spaceless model.

Keywords: housing expenditure share, monocentric model of a city, spatial sorting, welfare inequality

JEL Classification: D04, R20, R30

Suggested Citation

Gong, Yifan and Leung, Charles Ka Yui, Does Space Matter? The Case of the Housing Expenditure Cap (September 25, 2023). Available at SSRN: https://ssrn.com/abstract=4582353 or http://dx.doi.org/10.2139/ssrn.4582353

Yifan Gong

University of Nebraska at Lincoln ( email )

730 N. 14th Street

Charles Ka Yui Leung (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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