Does space matter? The case of the housing expenditure cap

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


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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