Modeling policy levers for housing affordability in urban centers
In nearly every major urban center, housing affordability is in crisis. Since the 1960s, median home value has risen by 112% across the country, while median owner incomes rose just 50%. For renters, especially since 2008, the problem is increasingly acute:nearly half of renters (over 20 million people) pay over 30% of their income on rent.
In New York City, nearly two-thirds of all residents are renters (half of whom are rent-burdened), and the politics of housing policy remain correspondingly fraught. In a recent paper, researchers JACK FAVILUKIS, PIERRE MABILLE, and STIJN VAN NIEUWERBURGH at Columbia Business School develop a dynamic stochastic spatial equilibrium model to quantify the welfare implications of various policy tools. Calibrating the model to New York City, the authors examine the interactions between funding and affordability policies to chart a possible path forward. From the paper:
"Policy makers are under increasing pressure to improve affordability. They employ four broad categories of policy tools: rent control (RC), zoning policies, housing vouchers, and tax credits for developers. Each policy affects the quantity and price of owned and rented housing and its spatial distribution. It affects incentives to work, wages, commuting patterns, and ultimately output. Each policy affects wealth inequality in the city and in each of its neighborhoods.
While there is much work, both empirical and theoretical, on housing affordability, what is missing is a general equilibrium model that quantifies the impact of such policies on prices and quantities, on the spatial distribution of households, on income inequality within and across neighborhoods, and ultimately on individual and city-wide welfare. Consistent with conventional wisdom, increasing the housing stock in the urban core by relaxing zoning regulations is welfare improving. Contrary to conventional wisdom, increasing the generosity of the rent control or housing voucher systems is welfare increasing."
- Data for Progress analyzed housing proposals from the leading 2020 candidates. Link to the reports, and link to an updated version of Senator Warren's proposal.
- A report from last spring by authors Peter Gowan and Ryan Cooper advocates for an across-the-board expansion of social housing in the United States. Link.
- Tangentially related, a JFI letter from last year highlighted thinking and proposals around the implementation of a land value tax. Link.