Does space matter? The case of the housing expenditure cap

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Original languageEnglish
Article number103974
Journal / PublicationRegional Science and Urban Economics
Volume104
Online published23 Dec 2023
Publication statusPublished - Jan 2024

Abstract

In our evaluation of the housing expenditure share cap, a macroprudential policy, we discover the importance of modeling space. In a spatial model, the equilibrium features income-based spatial sorting where a household competes with households of their own income type for residential space. As a result, the cap policy causes a larger drop in housing demand, and consequently a larger reduction in equilibrium housing prices, for constrained low-income families than for unconstrained high-income families. Depending on the assumption on households’ preference, this mechanism leads to a smaller increase or even a modest decrease in welfare inequality in a spatial model than in a spaceless model. © 2023 Elsevier B.V.

Research Area(s)

  • Housing expenditure share, Monocentric model of a city, Spatial sorting, Welfare inequality

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Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).