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Does Space Matter? The Case of the Housing Expenditure Cap

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  • Yifan GONG
  • Charles Ka Yui LEUNG

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.

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  • Yifan GONG & Charles Ka Yui LEUNG, 2023. "Does Space Matter? The Case of the Housing Expenditure Cap," ISER Discussion Paper 1214, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1214
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    More about this item

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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