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Can more housing supply solve the affordability crisis? Evidence from a neighborhood choice model

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  • Anenberg, Elliot
  • Kung, Edward

Abstract

We estimate a neighborhood choice model using 2014 American Community Survey data to investigate the degree to which new housing supply can improve housing affordability. In the model, equilibrium rental rates are determined so that the number of households choosing each neighborhood is equal to the number of housing units in each neighborhood. We use the estimated model to simulate how rental rates would respond to an exogenous increase in the number of housing units in a neighborhood. We find that the rent elasticity is low, and thus marginal reductions in supply constraints alone are unlikely to meaningfully reduce rent burdens. The reason for this result appears to be that rental rates are more closely determined by the level of amenities in a neighborhood—as in a Rosen-Roback spatial equilibrium framework—than by the supply of housing.

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  • Anenberg, Elliot & Kung, Edward, 2020. "Can more housing supply solve the affordability crisis? Evidence from a neighborhood choice model," Regional Science and Urban Economics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:regeco:v:80:y:2020:i:c:s0166046217304283
    DOI: 10.1016/j.regsciurbeco.2018.04.012
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    Cited by:

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    2. Kulka. Amrita & Sood, Aradhya & Chiumenti, Nicholas, 2022. "How to Increase Housing A ordability? Understanding Local Deterrents to Building Multifamily Housing," CAGE Online Working Paper Series 635, Competitive Advantage in the Global Economy (CAGE).
    3. Ruben Tarne & Dirk Bezemer, 2023. "ousing affordability in a monetary economy: an agent-based model of the Dutch housing market," IMK Working Paper 222-2023, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Nicholas Chiumenti & Amrita Kulka & Aradhya Sood, 2022. "How to Increase Housing Affordability: Understanding Local Deterrents to Building Multifamily Housing," Working Papers 22-10, Federal Reserve Bank of Boston.
    5. Ghalehteimouri Kamran Jafarpour & Rahimzadeh Azad & Parizadi Taher & Sasanpour Farzaneh, 2021. "Qualitative and Quantitative Analysis of Housing Indices at the Neighborhood Level: Case Study of Region 6 of Tehran Municipality," Real Estate Management and Valuation, Sciendo, vol. 29(2), pages 1-15, June.
    6. Juan Carlos Lopez, 2022. "Will Increasing Housing Supply Reduce Urban Inequality?," International Regional Science Review, , vol. 45(4), pages 383-416, July.
    7. Kindström, Gabriella & Liang, Che-Yuan, 2024. "Does new housing for the rich benefit the poor? On trickle-down effects of new homes," SocArXiv u7hjv, Center for Open Science.

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    More about this item

    Keywords

    Housing affordability; Housing supply; Neighborhood choice;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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