The increase in house and rental prices is one of the most pressing issues in cities and agglomerations around the (industrialized) world. Large cities attract high-skilled workers, spurring housing demand and leading to sharply rising living costs. At the same time, highly productive firms choose locations based on the availability of thick high-skilled local labor markets, which increases agglomeration forces and attracts even more highly skilled workers. These newly attracted workers demand and create high-end cultural goods that themselves function as local amenities and further increase local productivity. As a consequence, the composition of cities changes rapidly as less-skilled, lower-income individuals are forced out of their old neighborhoods in the city center and have to move to less expensive (parts of the) cities that have a lower quality of local amenities and are hence less productive. This process of urbanization and gentrification has increased regional inequality separating high-productivity and low-productivity places – within and across cities – with potentially important social and economic consequences.
In light of these important economic trends and a heated public debate on how to solve the housing crisis reliable knowledge about effective policy instruments is crucially needed. It is the objective of the project to significantly advance our understanding of the effects of housing policy on regional inequality and to answer the following specific questions: How do various housing policies affect local labor and housing markets? How effective are these policies in mitigating the sharp increase in housing prices? How distortive are various housing policies, and how to economic agents adjust their behavior? Eventually, what are the overall distributional consequences of public housing policy?
In particular, the project studies the efficiency and equity effects of different policy instruments: residential property taxes, commercial property taxes, real-estate transaction taxes, capital gains transaction taxes, local public spending, social housing programs, and rent control. The overall project consists of independent but thematically linked parts in which I investigate specific policy instruments and aspects of the housing market. All parts provide a set of partial answers to the overarching research question of the project:
How do different public housing policies shape local housing markets and affect regional inequality?
