Occasional Paper

No.56
May 2022

Housing policy and

affordable housing

Christian A.L. Hilber

Olivier Schöni
Abstract
Lack of affordable housing is a growing and often primary policy concern in cities around the world.
The main underlying cause for the ‘affordability crisis’, which has been mounting for decades, is a
combination of strong and growing demand for housing in desirable areas in conjunction with tight
long-run supply constraints, both physical and man-made regulatory ones. Key policies to tackle
affordability issues include rent control, social or public housing, housing vouchers, low-income tax
credits, inclusionary zoning, mortgage subsidies, or government equity loans. Existing evidence
reveals that the effectiveness and the social welfare and distributional effects of these policies depend
not only on policy design, but also on local market conditions, and general equilibrium adjustments.
While many housing policies are ineffective, cost-inefficient, or have undesirable distributional
effects, they tend to be politically popular. This is partly because targeted households poorly
understand adverse indirect effects. Partly, it is because the true beneficiaries are often politically
powerful existing property owners, who are not targeted but nevertheless benefit via house price and
rent capitalization effects. Designing policies that tackle the root causes of the affordability crisis and
help those in need, yet are palatable to a voter majority, is a major challenge for benevolent policy
makers.

Keywords: Housing policy, affordable housing, supply constraints, land use controls, housing
subsidies, public housing, social housing, rent control, inequality
JEL: H24; H53; R21; R31; R32; R52

We thank Hannah Simpkins and Mustapha El-Mastouri for valuable research assistance. All errors are
the sole responsibility of the authors. This is a Working Paper version of an article intended for the
Oxford Research Encyclopedia of Economics and Finance.
Christian Hilber, Department of Geography and Environment, London School of Economics
and Centre for Economic Performance London School of Economics. Olivier Schöni Laval University
and Visiting Fellow at London School of Economics.

Published by
Centre for Economic Performance
London School of Economics and Political Science
Houghton Street
London WC2A 2AE

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or
transmitted in any form or by any means without the prior permission in writing of the publisher nor
be issued to the public or circulated in any form other than that in which it is published.

Requests for permission to reproduce any article or part of the Occasional Paper should be sent to the
editor at the above address.

 C. Hilber and O. Schöni, submitted 2022.

1 Introduction

Lack of ‘affordable housing’ is a growing policy concern around the world, particularly in so called

superstar cities (such as London, Hong Kong, or San Francisco) and desirable tourist areas. It has

fueled social unrest in various cities and has triggered a flurry of policies aimed at addressing the

‘crisis of affordability’.

The term ‘affordable housing’ is defined here as housing that has periodic costs (rental costs or user

costs for owner-occupiers) deemed ‘affordable’ relative to household income. In some countries like

the UK, ‘affordable housing’ has a different meaning, referring specifically to subsidized housing

provided to eligible households whose needs are not met by the market.

The most common, if imperfect, way to measure ‘affordability’ is by comparing house prices or rents

to household incomes. One rough rule of thumb states that housing is generally deemed affordable

when the price-to-annual gross household income ratio is below 3. Another rule of thumb suggests

that rental costs (or housing expenditures for owner-occupiers) should not exceed 30% of gross

household incomes.

Using the basic price-to-income measure to proxy for ‘housing affordability’, statistics from

numerous countries suggest a trend towards less and less affordable housing, in some cases over a

period of several decades. This is especially true for superstar cities where housing has become

‘seriously’ unaffordable for a growing fraction of the population. It similarly applies to desirable

tourist areas, where native residents are increasingly out-priced by second home buyers or out-rented

by temporary holidaymakers who use rental sharing platforms.

Figure 1 shows median price-to-median income multiples for six supply-constrained and thriving

‘superstar cities’ (Panel A) and six cities that are either declining or have lax land use restrictions

(Panel B) from 2010 to 2020. All superstar cities are well above the rule of thumb threshold for

1
‘affordable’ housing, with Hong Kong1 clearly standing out, and all have experienced a significant

decline in affordability. In contrast, price-to-income ratios in cities with few supply constraints have

remained stable around the affordability threshold. This is true for both declining cities, such as

Detroit and for moderately growing ones such as Quebec. A comparison of Panels A and B also

reveals that there can be enormous variation in affordability across space, even within the same

country.

Figure 1
Price-to-income ratios for select cities around the world
Panel A: Supply-constrained superstar cities Panel B: Cities with fewer supply constraints

Note: The data is derived from the Annual Demographia International Housing Affordability Surveys, 2011-2021. The
raw data is from national sources. The bold black line represents the price-to-income ‘affordability threshold’ of 3.

One limitation of Figure 1 is that it is confined to only eleven years of data, covering less than a full

real estate cycle. Panel A of Figure 2 overcomes this limitation by focusing on English regions and

data from 1983 to 2021, illustrating strong cyclicality in housing affordability, especially in the

extremely supply-constrained Greater London region.

A further limitation of Figure 1 is that price-to-income ratios ignore financing costs and taxes

associated with owner-occupied housing. Yet, as illustrated in Panel B of Figure 2 for London and

the UK over the last two and a half decades, even when one considers the favorable credit conditions

in the UK over this period, housing affordability has deteriorated. Another shortcoming of price-to-

income ratios (based on mean or median house prices and incomes) is that they are unlikely

1
Wu et al. (2012), amongst others, document serious housing affordability issues in urban China and especially in the
country’s superstar cities.
2
representative for the lowest incomes who often live in strongly subsidized social or public housing,

or for moderate incomes who typically rent privately. This is illustrated in Panels C and D of Figure

2, again for London and the UK. Panel D further suggests that the affordability crisis is by no means

confined only to the lowest incomes. Panels C and D jointly imply that at least in settings where low-

income households are provided with subsidized housing, like in the UK, private renters with

moderate incomes may be those struggling the most with their housing costs.

Figure 2
Housing affordability measures for London and the UK
Panel A: House price-to-earnings ratio Panel B: First-time buyer mortgage payment as %
(Selected UK regions, 1983q1-2021q3) of take-home pay (1997q1-2021q1)

Panel C: Average weekly social rent as % Panel D: Average weekly private rent as %
of 10th percentile weekly pay of 20th/30th percentile weekly pay

Notes: Panel A: Sources: Nationwide, ONS, ASHE, and NES. Mean house price is derived from all properties. Mean
gross earnings are from each region. Panel B: Sources: Nationwide, ONS, ASHE, and NES. Calculated using new lending
interest rate for 80% loan of typical first-time buyer house price (25-year repayment mortgage). Panel C: Source for
earnings: NOMIS and ASHE. 10th percentile earnings. Earnings correspond to relevant geographical unit. Source for
social rents: [Link] Live Table 704 – PRP rents. Panel D: Source for earnings: NOMIS and ASHE. 20th/30th percentile
earnings. Earnings correspond to relevant geographical unit. Source for private rents: £ amount for private rents from
2019 from VAO, experimental private rent index from the ONS.

Gabriel and Painter (2020) provide similar evidence of the renter housing cost burdens by household

income quintiles in the US for an even longer time-period – between 1960 and 2014 (see their Chart

1), illustrating a fairly steady increase in the cost burdens for the bottom, second, and third quintile

of the income distribution, with the burden by far highest for the bottom quintile.

3
What are the root causes of the mounting housing affordability crises around the world? This question

is hotly debated amongst economists and finance scholars. Three strands of the literature can be

distinguished. The first is a strand of the urban economics literature, which highlights the importance

of local long-run supply constraints, especially land use restrictions, in conjunction with local long-

run demand growth, as crucial determinants of high and growing house costs. The second strand

emphasizes macroeconomic factors and financing conditions. It argues that a unique macroeconomic

environment with a decline in the real rate of interest (influenced by central banks) or unprecedented

availability of housing credit may explain a significant fraction of the increase in house prices over

the last two decades. The third strand focuses on the role of unrealistic expectations about future

house price growth.

Lack of affordable housing may, in the extreme, lead to homelessness. It may also lead to inadequate

consumption of rental housing; households are forced to live in cramped and/or unsafe conditions.

Finally, it may prevent households from becoming homeowners, the preferred form of housing tenure

for most households. This is either because they are credit constrained (i.e., downpayment or liquidity

constrained) (Linneman and Wachter, 1989; Fuster and Zafar, 2016), so cannot obtain a mortgage, or

because they consider investing all their savings into one single asset too risky (Henderson and

Ioannides, 1983; Turner, 2003; Hilber, 2005). Housing policies have attempted to address all three

issues.

Implemented housing policies vary enormously within and across countries, and while some policies

– such as rent control or the Mortgage Interest Deduction (MID) – are more common, many countries

and cities have their unique policy variations that are driven by each country’s institutional setting.

Evaluating the effectiveness of housing policies has been the subject of countless, mostly empirical,

studies. This review focuses on the evaluation of two types of housing policies: policies that are

widespread around the world (such as the MID) and policies that are more idiosyncratic in nature but

have undergone the scrutiny of rigorous policy evaluations (such as the Low-Income Housing Tax

Credit program, LIHTC, in the United States).

4
One insight of these evaluations is that many housing policies are not only costly but also ineffective.

The underlying political economy of this, at first glance, surprising finding is discussed below.

2 Theoretical considerations

Several theoretical models guide intuition of the effects of housing policies aimed at improving

affordability (e.g., Glaeser and Luttmer, 2003; Sommer and Sullivan, 2018; Diamond and McQuade,

2019; Davis et al., 2021). In developing such models, some key features are more instrumental than

others when trying to understand the general equilibrium effects, unintended consequences, and the

distributional and welfare effects of housing policies.

Space is one important feature that must be considered. Many policies – be they place-based or tenant-

based – aim to directly modify individuals’ residential location choices. Even so-called ‘blanket’ or

macro policies that target a whole country homogenously, may differ in their impacts across locations,

for example because local housing supply price elasticities or access to labor markets differ. This, in

turn, triggers a variety of spatial responses according to the economic incentives created by the policy.

Spatial general equilibrium models extend partial equilibrium frameworks, linking housing policies

that influence housing demand or supply with other markets, such as labor and credit markets, and

with public expenditures and the fiscal system more generally. This enables researchers to consider

numerous indirect general equilibrium responses and their feedback effects on housing market

outcomes, as well as distributional and social welfare consequences. One important – and often

overlooked – general equilibrium mechanism is that demand-induced rising housing costs do not

necessarily imply lower affordability. This is because rising incomes, easier access to credit, or

cheaper credit have two opposing effects: A direct effect, making housing more affordable, and an

indirect effect, via increasing demand for housing and therefore prices and rents, making housing less

affordable.

Another important feature is income heterogeneity across households. This has important

implications. Recent descriptive evidence (Basten et al., 2017; Couture et al. 2019; Tsivanidis, 2019)

5
suggests that households’ preferences are non-homothetic, with lower income households spending

a higher share of their incomes on housing compared to higher income households. This implies that

housing policies that target the poorest fraction of the population might have large effects on their

economic responses. A further implication is that downpayment- and liquidity-constraints affect

households differently depending on their incomes.

A final and crucial dimension is the type of economic agents modelled. To be able to assess the

distributional and social welfare effects of given housing policies, one ought to distinguish between:

renters, homeowners, and (absentee) landlords. Importantly, households might choose to which of

the three types to belong to, responding endogenously to policy-induced incentives.

3 The Causes of the Affordability Crisis

Focusing only on the housing cost side, rather than on affordability, several strands of the literature

have attempted to explain the strong increase in housing costs over extended time periods. The first

strand has focused on the role of long-run supply constraints (or the long-run housing supply price

elasticity) in conjunction with local demand growth in explaining the strongly growing house prices

and – to a lesser extent – rents over the past few decades. A second strand has instead concentrated

its attention on changes in credit conditions to explain the strong house price growth or decline over

extended periods of time, that is, over the boom or bust of a housing cycle. A third strand, finally, has

focused on the role of expectations and, in particular, irrational expectations. The three strands of the

literature are briefly outlined below.

3.1 Increasingly binding supply constraints and strong demand in thriving cities

Long-run housing supply constraints (i.e., man-made regulatory constraints, pre-existing physical

structures, water bodies, non-developable landcover, and steep slopes) vary enormously across space

and so does the corresponding long-run supply price elasticity (Saiz, 2010; Hilber and Vermeulen,

2016; Baum-Snow and Han, 2020; Büchler et al., 2021).

6
Land use restrictions are in practice not determined by a benevolent planner but are the outcome of a

political process and can be expected to become more restrictive over time. That is, as demand

increases over time and locations become more ‘filled up’, owners of developed land, who want to

protect their asset values by limiting supply, become more politically influential compared to owners

of undeveloped land, who prefer lax land use restrictions (Hilber and Robert-Nicoud, 2013), leading

– via voting and lobbying mechanisms – to tighter restrictions.

Moreover, even if regulatory restrictions and physical constraints themselves do not change, their

bindingness depends on demand for housing space. To illustrate this point, consider a 10-story height

restriction in the heart of Manhattan, New York, or in the desert. The restriction will be extremely

binding in Manhattan, but completely irrelevant in the desert, as there is usually no demand to build

tall buildings in the latter location. Similarly, water bodies are unlikely to constrain housing supply

in Cleveland as much as they do in New York.

This has important implications not only for the effect of long-run demand growth on house prices,

but also for its impact on housing affordability. Theory suggests that the same positive income shock

capitalizes more strongly into prices in places with more inelastic long-run supply of housing.

Consistent with this, it can be observed that not only did real housing costs increase substantially (in

a cyclical fashion) in supply-constrained and thriving superstar cities over the last few decades, but

correspondingly, housing affordability has deteriorated (see Figure 2 for London).

How important the various long-run supply constraints are for the substantial increase in housing

costs over the last two or three decades is an empirical question. Numerous rigorous empirical studies,

mainly focusing on the United States, point to the important role of tight land use restrictions, finding

a strong causal effect of land use regulation on house prices (e.g., Glaeser and Gyourko 2003, Glaeser

et al. 2005a and 2005b, Quigley and Raphael 2005, Glaeser et al. 2008, or Saks 2008), especially in

desirable and supply-constrained larger cities, so called ‘superstar cities’ (Gyourko et al. 2013).

Molloy (2020) provides a review of the effect of land use regulation on housing affordability and

Gyourko and Molloy (2015) provide a review of the related impact of regulation on housing supply.
7
Cheshire and Hilber (2008) point to important interaction effects between the planning and the tax

system, suggesting that local planning restrictiveness is facilitated by a lack of tax-induced incentives

to permit development. Consistent with this, Ehrlich et al. (2018) document a link between local fiscal

incentives and sprawl.

Hilber and Vermeulen (2016) investigate to what extent the real house price-earnings elasticity across

English local authorities varies by different types of supply constraints. They find that tight land use

restrictions in conjunction with positive earnings or labor demand shocks can explain a substantial

fraction of the increase in house prices between 1974 and 2008. Their simulations suggest that if the

South East (the most tightly regulated region in England) had the regulatory restrictiveness of the

North East (the least regulated region, but still tightly regulated by international standards), house

prices would have been 25 percent lower. The impact of physical constraints (due to the scarcity of

developable land) is important but largely confined to highly urbanized areas like London. Uneven

topography plays a quantitatively less meaningful role. Hilber and Mense (2022) and Büchler et al.

(2021) document that these mechanisms do not only hold for prices, but also for rents: Housing rents

increase more strongly in response to positive labor demand shocks in more supply constrained

locations, although the amplifying impact of supply constraints is stronger for prices than for rents.

This is consistent with prices, in contrast to rents, capitalizing not only the contemporaneous demand

shock, but also future expected demand growth. The same argument applies for price-to-income

ratios. The more inelastic long-run supply, the more prices can be expected to grow relative to

incomes.

To what extent rising income inequality within cities may differentially affect housing affordability

for different income groups is an interesting question. The answer depends, in part, on whether the

housing markets for low and moderate incomes and the markets for higher incomes are segmented

by tenure and/or quality. In a setting where housing markets are not segmented, price and rent

increases should be similar across housing tenures and qualities. This implies that rising income

inequality will reduce affordability mainly for low and moderate incomes (as prices and rents increase
8
strongly, but incomes increase the least for low and moderate incomes). However, to the extent that

the lowest incomes benefit from subsidized housing, in contrast to moderate and middle incomes, the

latter income groups may paradoxically be the one hit most strongly by ever rising equilibrium market

rents and prices, consistent with Figure 2, Panels C and D.

3.2 Mortgage credit conditions

Mortgage credit refers to loans used by households to purchase (or maintain) a property. Households

qualifying for a mortgage loan must pay back the lending institution over time, usually with regular

payments composed of principal and interest. Access to mortgage credit allows less wealthy

households to put their feet on the owner-occupied property ladder, thereby allowing them to hedge

against unforeseen rent increases (Sinai and Souleles, 2005) and progressively and ‘automatically’

accumulate wealth over time (Bernstein and Koudijs, 2020).

What is the effect of mortgage credit conditions on housing affordability? Two elements are

considered here: mortgage interest rate dynamics and the (de)regulation of the credit market. The

downward trend of mortgage rates observed over the last two decades – strongly influenced by central

banks discount rate decisions – may explain a significant fraction of the aggregate house price

increase in many rich countries. However, this countrywide downward trend is highly unlikely to

explain the massive and growing housing affordability gap between superstar cities and places with

lax land use restrictions and less strong demand growth illustrated in Figure 1. This gap is likely

predominately driven by long-term growth differentials in the real economy across space in

conjunction with differences in long-run supply constraints. Moreover, even the general upward trend

in house prices at the aggregate level may in parts be driven by long-term demand growth at the

macro-level in conjunction with the overall supply restrictiveness at country level.

Over the last few decades, the mortgage markets of several countries have undergone substantial

deregulation – earlier in some countries like the UK and later in others like the US. By exploiting

changes in credit supply caused by the deregulation of the US credit market having occurred before

9
the Great Financial Crisis, several papers provide evidence that credit supply amplifies house price

cycles, driving up prices during booms and exacerbating downward trends during busts (Di Maggio

and Kermani, 2017; Mian and Sufi, 2021).2 This amplification effect is heterogeneous across

locations. Favara and Imbs (2015) show that the price effect is larger in locations with more inelastic

housing supply compared to locations with more flexible supply conditions.

In contrast to the above studies that focus on credit expansion periods, Carozzi (2020) explores what

happens during the bust phase of a house price cycle. He shows that financial institutions tighten

credit supply by adopting more stringent lending standards. This makes it more difficult for young

first-time buyers having scarce financial resources to afford to become homeowners.

All the above has not only implications for housing costs, but also for housing affordability. In

particular, an expansion of credit supply seems highly unlikely to explain the persistent decrease of

overall housing affordability (which includes financing costs) observed over the last few decades in

desirable locations. First, credit expansions should improve housing affordability, at least in markets

with elastic long-run supply of housing, whereas in markets with inelastic supply, cheaper credit and

higher house prices likely roughly balance each other out. Second, changing credit conditions may

explain the transitory cyclicality in housing affordability rather than its persistent long-term

deterioration.

3.3 Behavioral factors and other forces

Behavioral responses of economic agents – both on the demand and supply side – can in theory

explain extended periods with sharply rising house prices (e.g., the boom periods in Figure 2). Like

with the expansion of credit supply, however, they are highly unlikely to explain deteriorating

affordability over decades.

2
An alternative strand of the literature explains house price booms and busts with changes in beliefs rather than with
changes in credit conditions (Kaplan et al., 2020). Greenwald and Guren (2021) suggest that the importance of credit
supply and beliefs in shaping price dynamics depends on the degree of segmentation between the rental and owner-
occupied housing market. Their findings imply a large effect of credit supply on house prices.

10
Periods with sharply rising house prices may be caused, on the demand side, by euphoric investors

or, on the supply side, by myopic developers and lenders in conjunction with short-run planning and

construction lags. The two mechanisms are discussed in turn below.

The role of investors and irrational exuberance of euphoric investors

Strong positive demand shocks in conjunction with planning and construction lags on the supply side,

can cause strong initial price increases. Potential investors/buyers (i.e., agents on the demand side)

observe these increases. If a plausible story tells them that the price responses persist, they may start

to form unrealistic or excessive expectations of future price increases. Buyers become euphoric or

‘irrationally exuberant’ and increase their reservation prices beyond what is supported by the

fundamentals. In such a setting, herding behavior of investors can form and further spur demand and

push up prices, which seemingly confirms the beliefs of the early investors. This can ultimately lead

to a ‘bubble’, which refers to a situation in which “excessive public expectations of future price

increases cause prices to be temporarily elevated” (Case and Shiller 2003). Eventually, when prices

deviate ‘too much’ from the price that is supported by fundamentals and ‘the greater fool’ doesn’t

turn up anymore (perhaps because she or he can no longer finance the purchase or there is a random

negative market signal casting doubt), the ‘bubble’ bursts and prices collapse, to eventually return to

fundamentally supported levels. One important implication is that ‘irrational exuberance’ may only

explain a temporary sharp decline in affordability. It may not explain a decline over decades. Another

caveat is that ‘irrational exuberance’ relies on housing purchases being mainly driven by investment

rather than consumption motives.

While some wealthy investors may become irrationally exuberant, other wealthy individuals may

affect housing markets even if they are not driven by euphoria but simply want to efficiently allocate

their wealth. Over the last few decades, rising wealth accumulation among a growing cohort of

individuals, has led to a dramatic increase of second homeowners (Hilber and Schöni, 2020). These

buyers may only spend a few weeks per year in their secondary residences and their purchases may

be driven as much or more by investment motives than by consumption ones. Such investments may
11
be speculative in nature, or dictated by a ‘flight to safety’, as pointed out by Badarinza and Ramadorai

(2018).

A common finding in the literature is that – to the extent that these buyers bid in the same market as

locals – they can significantly increase housing prices, making housing – especially owner-occupied

housing – less affordable for local residents. Such price effects tend to be strongly localized in certain

neighborhoods of superstar cities (e.g., Westminster and Chelsea in London) or tourist areas. They

are however unlikely to markedly affect house prices at the metro area level (e.g., at the level of the

Greater London metro area) (Hilber and Mense, 2021). Investors of second homes may influence

house prices not only by their sheer numbers. Chinco and Mayer (2016) show that out-of-town buyers

tend to overpay properties, as they are less informed than local buyers. Cvijanović and Spaenjers

(2021) provide evidence that foreign buyers might pay higher prices, as they tend to bargain less

intensively.

Housing affordability is also likely affected by the rise of sharing platforms such as AirBnB.

Especially in superstar cities and touristic areas, this technological innovation enables existing

investors/landlords to rent out their housing units more profitably as short-term rather than as year-

round rental units. This reduces the supply of regular rental units and thereby adversely affects

affordability. The rise of sharing platforms also made it more lucrative for wealthy individuals to buy

housing units as second homes, allowing them to ‘consume’ them for a few weeks a year and rent

them out for the rest. This creates additional demand for housing in central areas of superstar cities

as well as in touristic areas, potentially further driving up house prices, making it more difficult for

younger households with moderate incomes to get their feet on the owner-occupied housing ladder.

Barron et al. (2021) document that the presence of listing services drives up house prices and rents in

a causal sense, with the effects being larger for house prices. Koster et al. (2018) explore the effects

on house prices of constraining short-term housing rental platforms in Los Angeles. They find a strong

negative effect on the price of single-family homes but not on the price of apartments, hinting at

substantial negative externalities associated with short-term rentals within apartment buildings.
12
Myopic developers and lenders and development lags

A temporary amplification of prices can also be triggered by myopic developers and lenders, that is,

agents influencing the supply side of the housing market. Triggered again by a positive demand shock

in conjunction with planning and construction lags, prices may increase initially. If developers and

lenders are myopic, this may trigger them to form unrealistic expectations about future price growth.

This might lead to overbuilding fueled by easy access to credit, especially in markets with elastic

long-run supply. Eventually, the time-on-the market and housing vacancy rates start to increase and

eventually prices drop, often below the initial levels, until eventually a new market equilibrium is

achieved. Declining affordability caused by myopic supply-side agents in conjunction with lags is

too a temporary phenomenon. It cannot explain a steady decline in affordability over decades.

4 Policy responses and evaluations

4.1 Policies focused on owner-occupied housing

Most developed countries aim to make homeownership more affordable in one form or another. In

most cases, these policies aim to facilitate access to credit or to lower its cost. The most common and

popular policies are outlined below.

Mortgage Interest Deduction (MID)

The MID is perhaps the most popular policy to encourage homeownership, with many studies

focusing on the impact of the MID in the US on various housing outcomes. In a seminal paper, Glaeser

and Shapiro (2003) point out that the MID is targeted at the wealthy, who are almost always

homeowners regardless of the subsidy, and that households at the margin between owning and renting

often don’t itemize the MID. Thus, the MID may not create new homeowners but rather increases the

housing consumption of higher income households. Hanson (2012) provides empirical evidence

consistent with this proposition; he finds no relationship between the MID and homeownership

attainment but a significant positive effect of the MID on the size of purchased homes.

13
Hilber and Turner (2014) point out that in markets with inelastic supply of housing, the present value

of the MID (or of any other homeownership subsidy for that matter) can be expected to be capitalized

into house prices, thus offsetting the positive incentive effect of the subsidy on homeownership

attainment. In fact, because a MID-induced increase in house prices also amplifies the necessary

downpayment and future mortgage payments, it may reduce rather than increase homeownership in

markets with inelastic supply of housing. Consistent with this proposition, Hilber and Turner,

employing a panel fixed effects strategy, provide evidence that the MID only promotes

homeownership attainment of moderate- and higher-income households in metro areas with lax land

use regulation. In contrast, in markets with tight regulation, the MID discourages homeownership

attainment of the two income groups, with the net effect on homeownership for the country being

almost zero. They also show that the homeownership decision of lower income households, who do

not itemize the MID, are not affected by the MID.

In a related paper, Sommer and Sullivan (2018) develop a dynamic quantitative model to simulate

the effects of the MID on equilibrium house prices, homeownership, and welfare. Consistent with

Hilber and Turner’s empirical findings, their simulations suggest that eliminating the MID causes

house prices to decline, increases homeownership, decreases mortgage debt, and improves welfare,

challenging the widely held view that repealing the subsidy would depress homeownership. Blouri et

al. (2021) complement this work by investigating the location and tenure responses of households

following a repeal of MID subsidies in a spatial equilibrium framework. Consistent with the previous

literature, they find that, on aggregate, a repeal of the MID reduces homeownership only by a small

amount while increasing welfare.

Evidence for Europe points to similar conclusions. Exploiting a quasi-natural experiment in Denmark,

Gruber et al. (2022) – similar to Hilber and Turner (2014) – find that the MID has a precisely

estimated zero overall effect on homeownership for high- and middle-income households. Consistent,

with Sommer and Sullivan (2018), they find that reducing the MID lowers equilibrium house prices.

Consistent with Hanson (2012), they find a clear effect on housing demand at the intensive margin,
14
inducing homeowners to buy larger and more expensive houses. Moreover, the MID increases the

indebtedness of households.

Non-taxation of imputed rents and of capital gains for ‘principally owner-occupied units’

Some countries allow all owners – owner-occupiers as well as landlords – to deduct their mortgage

interest from income taxes. In this case, failure of the tax code to treat owner-occupiers as landlords

renting to themselves (i.e., the non-taxation of imputed rental income) as symmetry would require, is

the real source of the subsidy, not the MID per se. Eliminating the asymmetry would require taxing

imputed rents and preserving, not eliminating, the MID (Brueckner, 2014).

Most countries – with the notable exception of Switzerland, a country with a very low homeownership

rate – do not tax ‘imputed rental income’ of owner-occupiers. In a similar vein, many countries tax

capital gains from ‘investment properties’ but not from principally owner-occupied dwellings. Both

these ‘non-policies’ generate a strong asymmetric tax treatment of owner-occupiers and landlords,

favoring the former. Hilber (2014) provides evidence that the abolition of the ‘taxation of imputed

rental income’ in Spain and Italy had a relatively modest positive effect on homeownership

attainment, increasing it by around 2 percent.3 Capital gains tax reforms in Germany and Greece were

estimated to have similarly modest effects.

Government equity loans

Government equity loans is a policy, where the government provides a loan for up to a certain percent

of the house value to buyers of properties. These can be either all buyers or only first-time buyers

depending on the policy design. In addition, often buyers do not have to pay interest on the equity

loan for a certain number of years. One such example is Britain’s Help to Buy equity loan scheme

that is tied to the purchase of newly built homes. Carozzi et al. (2021) take advantage of spatial

discontinuities in the scheme (inside vs. outside the Greater London Authority and on the Welsh vs.

3
This modest effect may be for two reasons. First, the imputed rent for tax purposes in Italy and Spain has been much
lower than the true market rent. Second, the subsidy may be partially capitalized into higher house prices, thereby partly
offsetting the incentive effect of the subsidy.
15
English side of the border) to explore its economic and distributional impacts. They find that the

subsidy significantly increased house prices, while having no discernible effect on construction

volumes in Greater London, where housing supply is severely constrained. In contrast, the subsidy

had no effect on prices but increased construction near the English/Welsh border, were supply

conditions are lax. They also find that the main beneficiaries of the policies are existing landowners

and developers participating in the government’s scheme.

Other policies focusing on the availability and cost of mortgage debt

Under government equity participation programs, the state provides part of the capital at

advantageous credit conditions – including deferred mortgage payments and lower interest rates – to

allow households to purchase their first home. In return, the state gets an equity share and benefits

from the property capital appreciation proportional to their equity share. One example of such a policy

is the UK’s Help to Buy Shared Ownership scheme, although uptake has been limited. Debt-relief

programs provide incentives to lenders to renegotiate mortgage terms with financially constrained

borrowers. One example is the Home Affordable Modification Program (HAMP), launched in the

United States in 2009, aiming to help struggling homeowners to avoid foreclosure. Agarwal et al.

(2017) show that the HAMP program capitalizes into higher prices, similar to the MID. Finally, some

governments regulate the mortgage sector to allow for so-called alternative mortgage schemes, such

as interest-only and backloaded mortgages. These alternative schemes modify the mortgage

reimbursement structure to decrease the periodic cost of mortgage loans. The principal is typically

not fully paid back to lenders, who keep a permanent equity share until the property is sold. Garmaise

(2020) notes that while existing research suggests that alternative mortgage contracts mostly help

young and highly educated households to buy larger houses, the evidence of their impact on the

housing decisions of lower-income and less educated households is mixed.

16
Overall assessment of policies that aim to help finance leveraged ownership

All the above policies share some common points that arguably reduce their effectiveness in

improving housing affordability. First, by reducing the periodic cost of mortgage debt or by

facilitating access to credit, the policies increase demand for owner-occupied housing. In markets

with inelastic long-run supply of housing, the effect of this is to further increase house prices,

offsetting any positive effects on affordability. Second, these policies tend to be ‘blanket’ policies

that do not (or scarcely) differentiate between local housing markets and individual household

characteristics. As a result, these policies tend to be ineffective in promoting homeownership for

lower income groups and to improve social welfare. Finally, the policies tend to have undesirable

distributional effects, benefiting mainly existing homeowners via higher property values in tightly

supply constrained locations.

House price cooling measures

While most developed countries in the West have implemented credit related policies that facilitate

access to credit, thereby increasing housing demand, some Asian countries including China and

Singapore have gone in the opposite direction, imposing cooling measures in an attempt to stabilize

house prices and improve affordability, especially in superstar cities. Deng et al. (2019) explore the

effects of cooling measures in Singapore, including, among others, the introduction of a seller’s stamp

duty, an additional buyer’s stamp duty, a required total debt servicing ratio, and a change in the

required loan-to-value ratio. Their findings suggest that these measures have achieved their primary

goal to reduce house prices, while at the same time not causing significant collateral damage to the

broader economy.

One important caveat is that measures, which make access to credit more difficult or increase the cost

of credit, neither help low-income renters nor households with moderate incomes at the margin of

buying – prices fall, but only because credit conditions worsen.

17
Somerville et al. (2020) study the effects of a different cooling measure in mainland China:

purchasing restrictions implemented by local Chinese governments. These restrictions limit the

number of residential properties an individual can own, thus targeting, in part, second-home investors.

The authors find that, while significantly decreasing the transaction volume, the purchasing

restrictions do not seem to achieve the goal to contain price increases, likely due to developers

anticipating that the restrictions were temporary rather than permanent.

One crucial caveat with all these cooling measures is the question whether they could be effectively

implemented in Western democracies. One issue would appear to be political acceptance, especially

in countries with homeownership majorities. Another issue might be that the political process takes

too long, potentially triggering pro-cyclical rather than anti-cyclical price responses.

Price discounts to social tenants to purchase their home

Not all policies that aim to encourage homeownership attainment focus on the availability or the cost

of mortgage debt. An internationally unique policy is the UK’s ‘Right to Buy’ scheme, introduced in

1980, giving social housing tenants the legal right to buy their homes at a large discount with some

restrictions on resale, significantly increasing the homeownership rate. Disney and Luo (2017) assess

the impact of Right to Buy on social welfare. They find that the policy can improve aggregate welfare

of low-income households only if the quality of the social housing units is sufficiently low such that

middle-wealth households have no incentive to exercise the Right to Buy-option.

4.2 Policies focused on rental housing

Social and public housing

Social or public housing – different countries use different labels – refers to rental housing that is

either owned by the government or by non-profit organizations, or a combination of the two, and is

provided to eligible households at significantly below market rent. To qualify for social or public

housing, households must usually satisfy several criteria, intended to ensure that the housing units are

allocated to those most in need.

18
The share of social or public housing relative to all housing has declined significantly in many

countries over the last few decades. This may be partly because the provision and maintenance of

social or public housing are costly and governments’ public finances have been increasingly under

pressure, partly it may be because of policy assessments discussed below that are critical of the

benefits of providing such housing or other assessments that favor different policies such as housing

vouchers (Olsen, 2003; Olsen and Zabel, 2015).

By providing housing at significantly below market rent, governments, de facto, improve housing

affordability for qualifying households. The literature points, however, to two central shortcomings

associated with social housing. First, as stressed by Waldinger (2021), there is a trade-off between

efficiency and redistribution. Given that the price of social housing is set below the market price,

demand for social housing tends to largely exceed its supply. Qualifying households are thus put on

waiting lists, and it often takes years before they benefit from the policy, if at all. It also raises difficult

normative questions about who should get first preference, with ‘first come first served’ being a

common but highly inefficient rule. The second issue relates to the negative externalities arising from

concentrating social housing in a few local areas. Weinhardt (2014) documents that children whose

parents move to social housing in disadvantaged areas achieve lower educational attainments.

By exploiting the demolition of public housing and the provision of housing vouchers to relocate

lower income households, researchers have been able to estimate the impact of eliminating social

housing on individuals who were living in it and on nearby neighborhoods. The main findings are

that children, especially young ones, benefit from moving to less disadvantaged areas in the long run.

Chyn (2018) finds that children who relocate away from social housing are more likely to be

employed when reaching adulthood, earn more in the early stages of their careers, display fewer

arrests related to violent crimes, and tend to drop out less from high school. This contrasts with Jacob

(2004), who finds no indirect effect of public housing following demolitions. Chyn (2018) argues that

this is because Jacob only looks at short-term effects and his findings may thus not be a good guide

for understanding longer-run impacts. Aliprantis and Hartley (2015) find that violent crimes decrease
19
in areas where social housing units have been demolished. Importantly, this reduction in crime more

than compensates the increase in violent crime following the displacement of previous social housing

beneficiaries into new neighborhoods.

Overall, the above literature seems to suggest that ‘helping places’ via building more social housing

may be inferior to ‘helping people’ via housing vouchers. A more nuanced view of this statement is

offered below when assessing housing vouchers.

Rent control

Two broad types of rent control can be distinguished. ‘First generation’ rent control refers to hard

forms of rent control, in which no rent increases are permitted at all. The rent is effectively frozen at

the rate that existed when the law was enacted. ‘Second generation’ rent control, in contrast, refers to

a milder form of control, in which rent increases during a tenancy are limited (often indexed to an

economic indicator, such as the consumer price index), however, the rent is typically allowed to rise

to the market rent between tenancies (Arnott 1995).

Several exceptions and loopholes to rent ceilings are also usually put in place depending on the market

segment and/or the type of housing units. Often, only the existing stock or certain central areas are

affected by rent control.

The main goal of rent control is to make rental housing more affordable by capping future rent

increases. Economists have documented several unintended consequences of the policy, especially of

first generation rent control, that arise both from the supply and the demand side of the housing

market.

On the supply side, because the value of rental properties is given by the present value of future rents,

landlords of regulated properties lose out. This triggers them to curb construction of new rental

housing in regulated market segments and, if possible, to instead supply new housing in unregulated

segments, or, to find loopholes to avoid the regulation. Diamond et al. (2019) document that landlords

of regulated properties respond by selling housing units for owner-occupation and by

20
converting/renovating buildings to escape the regulation. To preserve the profitability of their real

estate assets, landlords of existing regulated units may reduce refurbishments and maintenance,

especially in the case of first-generation rent control, leading to a deterioration of the regulated

housing stock over time, which in turn may exert negative externalities on residents in neighboring

housing units. Although this latter mechanism is not strongly supported by the literature (Moon and

Stotsky, 1993), it seems in line with the findings of Autor et al. (2014). They find that decontrolling

housing markets leads to a considerable price appreciation of nearby never-controlled housing units,

implying that rent controlled units (or possibly their occupiers) exert negative externalities on

occupiers in non-regulated units.

On the demand side, rent control provides an incentive to households to remain in the same housing

unit for a longer period than they would if they had to pay the market rent. This is because the longer

a renter remains in the property, the more she benefits from capped rent increases. Reduced household

mobility creates two main unintended effects. First, workers who rent may be misallocated across

space, potentially hampering productivity. Second, the heterogeneous housing stock may be

mismatched with households’ characteristics and their optimal consumption patterns, leading to

allocation inefficiencies, as pointed out by Glaeser and Luttmer (2003).

Overall, rent control makes rental housing more affordable for some by redistributing rental income

from landlords to lower-income households (Olsen, 1972), creating a trade-off between desirable

distributional effects and welfare efficiency. In the long run, because the adverse effects of rent

control (misallocation of housing units, productivity losses, deterioration of housing stock, and

negative externalities) tend to increase over time, the welfare inefficiencies are likely to outweigh the

distributional benefits. Moreover, as the population tends to increase over time, especially in

attractive rent-controlled areas, the desired distributional effects are likely to decrease, as a

progressively smaller share of low-income renters will benefit from inelastically supplied rent-

controlled units.

21
Inclusionary zoning (provision of ‘affordable’ housing)

One way of providing subsidized housing to lower income households is through so called

‘inclusionary zoning’, which refers to local governments requiring a certain share of newly

constructed housing to be made affordable by developers to households with low to moderate

incomes, whereas the remaining units can be sold at market rates. This is in return for local

jurisdictions permitting development of a certain kind in the first place.

Inclusionary zoning (the opposite of ‘exclusionary zoning’, which aims to exclude lower income

households through the local zoning code) is popular amongst policymakers in urban locations and

widespread across the developed world. It comes in various shapes and forms. While in the United

States, for example, these policies typically involve placing deed restrictions on 10 to 30 percent of

new units, to make the cost of those units affordable to lower incomes, in the United Kingdom, the

share of ‘affordable housing’ units is negotiated between the developer and the local authority on a

project-by-project basis.

In addition to providing ‘affordable homes’ to lower incomes, an alleged benefit of inclusionary

zoning is that it mixes communities. Evidence on the benefits of mixing communities is discussed

below in the subsection on housing vouchers.

To understand the cost side of inclusionary zoning, starting point is the realization that mandatory

inclusionary housing is an implicit tax on market-rate housing. That is, while inclusionary zoning

provides ‘affordable homes’ for those lucky enough to qualify, it adversely affects the affordability

of non-subsidized housing via developers passing on the higher costs.

To the extent that inclusionary zoning is associated with costly and time-consuming negotiations

between developers and local authorities – like in the case of ‘Section 106 Agreements’ in the UK –

it injects additional risk into the development process, reducing the number of viable development

projects and ultimately new supply. This in turn adversely affects the affordability of non-subsidized

housing (Cheshire and Hilber 2021).

22
The main beneficiaries of the policy are thus arguably existing homeowners and landlords via higher

prices and rents on existing housing. Moreover, given that large scale developers are better equipped

to negotiate with local authorities and find legal ways around restrictions, inclusionary policies may

create barriers to entry for smaller scale developers, further increasing the deadweight loss associated

with inclusionary zoning policies.

What about the net effect of inclusionary zoning policies? In the United States, inclusionary housing

programs are sometimes voluntary, requiring subsidies or valuable exceptions to zoning regulations

to generate participation by developers. Soltas (2021) exploits such a setting in New York City to get

at the questions whether inclusionary zoning is a cost-effective means of generating mixing-induced

benefits and whether there might be more cost-effective policies. Building on a model of housing

developer behavior, Soltas asks the question how costly it is to induce developers to provide

inclusionary housing. While Soltas’ findings suggest that developers do respond to fiscal incentives,

he also finds that, on a city-wide average, the fiscal cost of the marginal inclusionary housing unit is

around $1.6 million. This is about six times the city-wide per-unit cost of other housing assistance

programs in New York City (i.e., Section 8 vouchers and Low-Income Housing Tax Credits (LIHTC).

Overall, Soltas’ findings strongly suggest that inclusionary zoning may not be a cost-efficient policy,

although he also points to immense variation in the fiscal costs across neighborhoods, with the cost-

efficiency being the worst in Manhattan and the best in the Bronx, Queens, and Staten Island.

All in all, inclusionary zoning, while politically popular, seems like an extremely cost-inefficient and

possibly even counterproductive way to tackle the housing affordability problem, especially in

desirable and tightly regulated cities.

4.3 Other relevant policies

Subsidies to housing developers

Over the last few decades, governments of several countries, such as the US and France, have resorted

to subsidizing private housing developers and investors whose development projects satisfy certain

23
eligibility criteria linked to affordability. The most investigated such policy is the Low-Income

Housing Tax Credit (LIHTC) program in the US. This has triggered a significant body of empirical

research.

The LIHTC program provides tax credits to housing developers who build or renovate housing units

for rent i) in an area targeted by the policy, ii) below a given rent level, and iii) for households who

do not exceed some income threshold over a long time. The tax credit is computed based on non-land

construction costs and is usually spread over several tax periods – e.g., a decade – and is not

refundable.

One of the main potential benefits of subsidizing developers via the LIHTC program is that it should

increase the supply of less expensive lower-end housing units for households below the income

threshold set by the policy. Moreover, when subsidies are allocated on a competitive basis, developers

might go beyond prescribed requirements to increase the likelihood of being awarded the subsidy,

lowering income and rent threshold levels and adding additional amenities to the development

project, such as internet connection or playgrounds. Finally, from a social welfare point of view,

subsidizing the construction of housing units may lead to positive externalities. The literature

documents an overall reduction in violent crime (Freedman and Owens, 2011) and related, price

increases of properties that neighbor subsidized developments in lower-income areas (Baum-Snow

and Marion, 2009; Diamond- McQuade, 2019).4 These effects are likely due to the gentrifying effect

of subsidizing construction in poorer areas, which attracts moderate- or middle-income households

that would not otherwise live in the neighborhood. The flip side of this gentrification process is, of

course, that housing becomes less affordable for lower income households living in the neighboring

areas. These households may move because they value the new amenities relatively less than the

incoming households, or they may be forced to move because they can no longer pay the rent.

4
Diamond and McQuade (2019) however also show that subsidized units in higher-income areas with a low share of
minorities are associated with negative externalities.

24
The literature has documented further drawbacks of subsidizing private housing construction. To

begin with, subsidies are poorly geographically targeted. Eriksen (2017) illustrates that subsidized

construction is mostly uncorrelated with local measures of housing affordability or the housing supply

elasticity.

At least two reasons lead to this inefficient spatial allocation of subsidies. First, the government must

decide on which basis to attribute the scarce total subsidy amount to lower-tier administrative units,

which in turn assign subsidies to selected development projects. To the extent that the initial

allocation to lower tier units is based on criteria unrelated to housing affordability, such as total

population, the program will be inefficient in its initial stage. Second, as pointed out by Lang (2012),

policy design-induced incentives encourage profit-maximizing developers to submit subsidized

construction projects in low rent areas, where affordability issues are comparatively less vital, and

tenants of subsidized buildings may pay a rent close to that of unsubsidized ones. This is because the

opportunity costs of renting out a subsidized property below the market rental rate in supply-inelastic

and high-demand areas is much higher. Related, Burge (2011) estimates that less than 50% of the

subsidy cost incurred by the government actually benefits tenants living in subsidized units in the

form of lower rents, implying that developers may benefit as much as the eligible tenants.

Another issue is that the subsidized units often do not cater to low-income households but, rather, to

moderate-income ones (Wallace, 1995). This is for several reasons. Income and rent ceilings of

subsidized units are relatively high. Early (1998), in this context, finds a weak effect of subsidized

housing in preventing homelessness. A major drawback of relatively high rent ceilings is that low-

income households living in subsidized buildings are still likely in need of additional financial support

to afford the housing costs (Williamson, 2011; O'Regan and Horn, 2013).

The fact that subsidized units, at least in the case of LIHTC, do not cater to low-income households,

leads to crowd out effects. Moderate-income tenants might have decided to live in the neighborhood

where the subsidized unit is located even in absence of the subsidy. Put differently, subsidized units

directly compete with unsubsidized ones in attracting moderate-income households into the area. This
25
crowd-out effect has been shown to be large in magnitude, with estimates ranging between 30% and

100% (Malpezzi and Vandell, 2002; Sinai and Waldfogel, 2005; Eriksen and Rosenthal, 2010).

Baum-Snow and Marion (2009) show that the crowd out effect is particularly acute in gentrifying

areas, where moderate-income households are more likely to move, and less severe in stable or

declining places.

A few suggestions have been formulated to alleviate the above issues in the context of LIHTC.

Eriksen (2017) argues that a better spatial allocation of the tax credits could be achieved when the

government attributes subsidies to lower-tier administrative units based on housing market

fundamentals, such a construction and land costs, and affordability measures. In a similar vein, lower-

tier administrative units may tailor rent and income ceilings to housing and labor market conditions

at much finer scale than the one of urban areas. To contain costs, governments may implement a

process where developers compete by bidding down the amount of the subsidy for a given

development project (Lang, 2015).

Place-based policies

The distinguishing feature of place-based policies is that they target specific geographic areas rather

than individuals. Place-based policies are wide ranging and encompass e.g., fiscal transfers, labor

market programs, local infrastructure investments, or policies aimed at improving the housing stock

in deprived areas, including project-based housing assistance or investments in existing public

housing. This section focuses on the impact that all these policies have on (i) housing affordability

for lower income households and, more generally, (ii) income- and wealth-inequality.

One feature that all place-based policies have in common – assuming they are at least somewhat

effective – is that they increase local demand for housing, either directly via making the local housing

stock more desirable, or, more commonly, indirectly, via improving local productivity, local

infrastructure, local public services, or via reducing local taxes. This in turn, can be expected to

increase house prices and rents, particularly so in markets with inelastic supply of housing, helping

26
better-off local homeowners and (typically absentee) landlords. In contrast, low-income households,

who almost always rent, do not benefit as much, or do not benefit at all from local improvements, as

these will be ‘offset’, at least in part and sometimes fully, by higher rents.

Empirical evidence of offsetting capitalization effects of place-based policies is ubiquitous. Starting

with the seminal paper by Oates (1969), countless empirical studies provide evidence that policies

that improve local public services, such as better school quality, or lower taxes, are capitalized into

higher house prices.5

While most studies have focused on the capitalization of local public services and/or local taxes, a

few studies have explored whether fiscal grants are capitalized as well. Hilber et al. (2011) show that

central government grants to deprived local authorities in Britain, aimed at helping disadvantaged

households, are essentially fully capitalized into higher housing costs, thus not helping lower income

renters, that is, those they were designed to assist. Another implication of capitalization effects is that

‘successful’ place-based policies are likely to lead to gentrification. This is especially true if lower

income households do not equally value the benefits generated by the place-based policy.

The above considerations strongly suggest that, at least from a ‘housing affordability’ or ‘equity’

point of view, place-based policies are problematic. Better policies should focus on ‘helping people’

directly rather than ‘places’, e.g., via vouchers.

One important caveat here is that the above proposition only holds if housing supply is at least

somewhat unresponsive (so there are capitalization effects) and rents are not strictly controlled.

Koster and van Ommeren (2019) provide an example of a place-based policy that does not suffer

from undesirable distributional effects in a setting with rent control. They study a place-based policy

in the Netherlands that improved the quality of public housing in impoverished neighborhoods. In

5
See Chaudry-Shah (1988) and Ross and Yinger (1999) for early comprehensive reviews of the theoretical and empirical
literature surrounding the ‘capitalization hypothesis’ and the related Tiebout-hypothesis. Tiebout (1956) proposed that
consumer mobility (voting-with-the-feet) and interjurisdictional competition, at least under restrictive assumptions, can
lead to an efficient provision of local public services. Oates (1969) thought to test the ‘Tiebout-hypothesis’ by exploring
whether fiscal differentials across local jurisdictions are capitalized into house prices. See Hilber, 2017, for a more recent
synthesis article on house price capitalization and its implications.
27
their setting, public housing is surrounded by owner-occupied housing stock (The Netherlands is

somewhat unique in that most housing is either owner-occupied or public rental). They show that the

policy was effective in improving the quality of the public housing stock and, via spillover effects, it

increased the price of the surrounding owner-occupied stock. Critically, the policy did not increase

rents, as rental units in the Netherlands are mostly public so rents are regulated. The consequence is

that both public renters and owner-occupiers in the targeted location benefited from the policy, with

the cost borne by the taxpayer.

A second important caveat is that if households are relatively immobile, then there may be little

difference, in practice, between ‘helping people’ and ‘helping places’ as the former type of policy

similarly increases local housing demand, offsetting the policy-induced benefits.

A last caveat is that it is assumed here that low-income households are credit constrained, preventing

them from buying their home and benefiting from the policy-induced windfall gains arising to local

property owners.

Housing vouchers

Housing vouchers are effectively a promise by the government to qualifying, typically low-income,

households to pay a certain fraction of their private rent to the landlord. So far, substantive housing

voucher programs appear to be confined to the United States. Households entitled to vouchers are

usually responsible for finding a housing unit that best fits their needs in terms of housing type and

location within the scope of the program. The household pays a fraction of its income in rent and the

government pays to the landlord the remaining difference. The contribution of the government varies

depending on several factors, but vouchers are usually capped by location-specific rent ceilings, with

these ceilings typically being relatively low. If the rent exceeds this ceiling, then recipient households

must top up the difference.

One advantage of vouchers is that, by reducing the rent burden of recipients, they improve housing

affordability and might reduce the likelihood of becoming homeless, although solid empirical

28
evidence on the latter is currently missing. Most of the existing research suggests that housing

voucher programs are comparatively more cost-effective than social housing ones (Olsen, 2003;

Olsen and Zabel, 2015; Olsen, 2017). This is particularly true in housing markets where subsidized

households can move into vacant units that would otherwise be unaffordable to them.

One key potential advantage of housing vouchers compared to place-based policies is that they tend

to prevent ‘ghettoization’ in certain locations. In fact, more recent implementations of housing

voucher schemes in the US aim to steer low-income households actively towards better opportunity

neighborhoods. This is achieved via voucher designs that create greater incentives to move to lower

poverty areas.

The literature highlights several benefits of doing so, especially for children of recipient households

moving to lower-poverty areas at a young age. Evidence by Chetty et al. (2016) documents that

children ‘moving to opportunity’ subsequently achieve higher college attendance rates, higher

earnings, and lower single-parenthood rates. Youths are also less likely to commit crimes (Ludwig et

al. 2001; Katz et al., 2001; Kling et al., 2005).

Evidence on the positive locational effects of housing vouchers is more mixed in the case of adults.

On the one hand, adults do seem to experience improvements in their physical and/or mental health,

and family safety ameliorates (Katz et al., 2001; Kling et al., 2007; Clampet-Lundquist and Massey,

2008; Ludwig et al., 2013). On the other hand, the better neighborhood environments do not seem to

improve their economic outcomes (Ludwig et al., 2013, Chetty et al., 2016). A strand of the literature

even documents a negative relationship between receiving a voucher and labor market participation

(Jacob and Ludwig, 2012). The negative impact of vouchers on labor supply might be because

households must contribute by paying a fixed share of their income for housing. As such, to benefit

from housing subsidies, households pay a ‘voucher tax’ on any increase in income, raising the

marginal tax rate and thereby decreasing the benefits from working.

29
Policy makers aiming to improve affordability via housing vouchers face several challenges. As with

social/public housing, demand for vouchers usually far outstrips supply, creating long waiting lists.

Ellen (2020) suggests in this context that attributing vouchers on a first-come first-served basis is

unlikely to optimize welfare, as the households that waited longer are not necessarily the ones that

are most in need or that benefit the most. The latter is particularly true for families with young

children, for which the locational benefits of vouchers seem to be particularly high.

Another challenge is given by low take up rates. Many households who receive vouchers do not (or

cannot) use them. Equally, landlords – who are not forced to participate in voucher-schemes – may

be reluctant to rent to voucher recipients, as they perceive them as riskier. Philips (2017) documents

that landlords are half as likely to accept tenants who wish to pay by voucher with the acceptance rate

declining with the rent amount, suggesting that qualifying households are unlikely to be able to move

to lower-poverty areas. An alternative explanation for observed low take-up rates is that households

are not able to find an affordable accommodation within the geographic scope targeted by the

vouchers. This issue is caused by the topping-up mechanism of the US voucher scheme, which

discourages qualifying households to rent in more expensive places. Galiani et al. (2015) find that

increasing the stringency of location restrictions that aim to steer voucher recipients to lower poverty

areas, via reducing the take-up rate of such vouchers, may perversely expose households to higher

poverty rates.

Voucher payments may also not fully benefit recipient households. Susin (2002) and Collinson and

Ganong (2018) find that increasing the number or, respectively, the value of housing vouchers in a

metro area leads to higher rents, both for subsidized and unsubsidized households. One implication

of this finding is that in places with inelastic supply, landlords – irrespective of whether they

participate in the voucher scheme or not – may benefit as much or more from the policy than the

voucher recipients. Recent work by Davis et al. (2021) suggests that targeting vouchers to areas

offering economic advantages might drive up rents, especially so in supply inelastic places. Some

households not receiving housing vouchers are then forced to leave the areas targeted by the voucher
30
program, moving to areas providing similar utility but having lower rents. Somewhat reassuringly,

the authors find that while children of households moving to higher-opportunity areas experience

large income gains in adulthood, children of families who leave these areas experience only small

losses, suggesting that in equilibrium relocation benefits outweigh losses. In contrast to these studies,

Eriksen and Ross (2015) do not find that an increase in the number of vouchers affected the overall

price of rental housing. Their finding is consistent with voucher recipients renting higher-quality units

raising demand and rents for such units but decreasing demand and rents for lower quality-units,

which they would have occupied without the voucher.

A mix of the above challenges, and the facts that low-income households are likely to have social ties

in less advantageous areas and perhaps also a preference for the amenities provided in these areas,

may prevent voucher recipients to use the voucher and/or to move to economically more attractive

locations. A few solutions have been suggested in the literature to address the above challenges. One

such solution is to relax the voucher location restrictions while decreasing market frictions (Galiani

et al., 2015; Bergman et al., 2020). Lower market frictions can be achieved by providing mobility

advice, customized search, and financial assistance to voucher recipients and by trying to promote

the engagement of landlords. Collinson and Ganong (2018) suggest indexing the rent ceiling to

smaller spatial areas, with higher ceilings in higher quality locations, and lower ones in less attractive

locations. They suggest that such a voucher reform can be budget neutral and may greatly improve

the sorting of voucher recipients into better neighborhoods.

5 Housing affordability and homelessness

The existing literature on homelessness can be categorized into two broad categories: individual-level

studies that primarily investigate homelessness from a social and health perspective and aggregate-

level studies that include most of the analyses investigating the relationship between economic

fundamentals and homelessness across cities and urban areas (O’Flaherty, 2019). These two strands

of the literature reveal conflicting insights. The former literature tends to point to personal

characteristics, such as mental illness and previous convictions, as main determinants of

31
homelessness, with only a marginal role played by housing markets and lack of affordable housing.

The opposite is the case for the second strand of the literature. O’Flaherty (2004) argues that

homelessness is likely a combination of individuals (i) having to live in tight housing markets with

unaffordable housing and (ii) belonging to a vulnerable class of society.

The existing literature documenting the link between economic indicators and homelessness is scarce

and faces several challenges. A first challenge is methodological and relates to implementing precise

measures of homelessness, be it of sheltered individuals/families, or unsheltered ones. A second

challenge is the question of how to identify the causal impact of specific market forces or policies on

homelessness.

Nevertheless, existing research seems to agree that tighter housing markets characterized by higher

rents and lower vacancy rates are associated with higher levels of homelessness (Quigley et al., 2001).

Additionally, O’Flaherty (1995) employs a partial equilibrium framework to show that under some

conditions, stronger income inequality translates into higher rates of homelessness.

One specific type of policy that aims to help the homeless is similar to social/ public housing: The

government provides short- to medium-term shelter or more permanent accommodation to

individuals in extreme need. Another policy is housing vouchers discussed above. A recurrent finding

in the literature is that placing homeless individuals into a permanent accommodation decreases

homelessness significantly less than on a one-for-one basis (Early, 2004; O’Flaherty and Wu 2006;

Corinth, 2017).

Several explanations have been provided. First, some targeted individuals would not have remained

homeless in the absence of the policy. Second, homeless individuals are reluctant to leave the

accommodation provided by the government. This slows down the rate at which people reinsert

themselves into the private housing market compared to their reinsertion rate without the policy.

Third, qualifying criteria of existing programs tend to create an incentive to remain homeless for

longer. This is because longer homelessness spells increase the likelihood to qualify for government

32
provided shelter. Finally, to the extent that programs aiming to help the homeless positively shift the

housing demand and capitalize into higher housing costs, those individuals at the margin of

homelessness who do not qualify for the program, and who would have not become homeless in

absence of the program, will be outpriced and become homeless.

6 Political economy considerations

The previous sections provide a gloomy picture of the effectiveness and cost-efficiency of policies

aimed at improving housing affordability. However, why do individuals vote for and continue to

support policies that have detrimental social welfare effects and, on occasion, even worsen

affordability?

Less educated voters might simply have limited knowledge of the current state of the housing market

and of the direct effects of a given policy. Slemrod (2006), for example, documents how a

misconception of the workings of the tax system affects the support of taxpayers for meaningful

reforms. Such misconceptions seem likely to also occur in the case of housing policies as many of

them, if not all, have complex implementations, including exceptions and loopholes that might apply

in specific circumstances.

An additional motivation for the support to detrimental housing policies might be poor anticipation

of the indirect, and often unintended, policy effects. Dal Bo et al. (2018) provide evidence in support

of this claim, showing that people may support welfare-decreasing policies because they

systematically underestimate how individuals’ behavior changes in response to the policy. This biases

individuals to vote in favor of policies that create visible direct benefits (such as lower tax payments)

and hidden indirect costs (such as demand-induced higher house prices or rents). Vice versa, voters

may reject policies that increase social welfare but have tangible direct costs.

Neglecting general equilibrium effects seems particularly harmful in the case of housing policies. As

documented above, a variety of general equilibrium effects and externalities are triggered by the

endogenous response of individuals to economic incentives. Often these responses are difficult to

33
anticipate, even for economists. This is due to the specific implementation-details of the policies. This

suggests that ill-advised policies might arise from the combination of both a poor understanding of

the policy design and of the economic mechanisms triggered by it. In the context of housing

affordability, the literature on this topic is sorely lacking with the exception of the work by Müller

and Gsottbauer (2022), who show that individuals tend to be overly optimistic about the impact of

rent control. When provided with evidence on the ‘indirect’ supply-side effect of the policy, those

more in favor of the policy update their beliefs and decrease their support.

A final reason for bad policies is that voters simply choose according to their own economic

incentives, even if this harms those that are targeted by the policy. Fischel’s (2005) ‘homevoter

hypothesis’ conceptualizes the link between homeowners’ political voting behavior and property

values. While perhaps not actively trying to maximize house values, homeowners try to protect their

asset values by opposing policies that create uncertainty or might be financially harmful. Likewise

existing homeowners may favor a policy that increases their asset values, even if the policy itself is

completely ineffective (such as the MID). Hilber and Robert-Nicoud (2013) extend Fischel’s view

by illustrating how land use constraints are not the unilateral results of homeowners’ decisions.

Rather, they arise from a political game between the owners of developed land (homeowners and

landlords) and owners of undeveloped land, with tight land use restrictions benefiting the former

group and lax regulations benefiting the latter. As such land use restrictions, or housing policies that

affect prices and rents for that matter, may be seen as the outcome of both voting and lobbying (Hilber

and Robert-Nicoud, 2013; Solé-Ollé and Viladecans-Marsal, 2012). Renters are unlikely to be

immune to promote housing policies out of self-interest, especially in countries like Switzerland or

Germany where they are politically powerful. Oates (2005) argues that renters are more likely to

support property taxation because they fail to realize that landlords charge them part of the tax via

higher rents. Ahlfeldt and Maennig (2015) show that the support of ‘leasevoters’ (i.e., voters who

rent their home) for policy initiatives differs from that of homevoters and that this is because some of

the benefits of the initiatives are neutralized by adjustments in market rents.

34
As pointed out by Dal Bo et al. (2018), politicians and media might reflect, rather than correct,

people’s biases by supporting ineffective policies that have large support among voters. For example,

policies aiming to increase the attractiveness of homeownership are often perceived as ‘redistributive’

policies. They are thus particularly popular amongst modest-income voters even though in most cases

the main beneficiaries are higher-income households.

7 Future directions and challenges

The existing research on housing affordability and housing policies has mostly focused on the causes

of the rising housing costs and on theoretically and empirically evaluating specific policies. One

important caveat here is that rising housing costs do not necessarily imply lower affordability. This

is because the increase in housing costs may be fully or at least in part driven by rising incomes and/or

cheaper access to credit. Two important avenues for future research would thus appear to be to (i)

conceptualize and implement more accurate measures of housing affordability and (ii) better identify

the determinants of ‘affordability’ (rather than just housing costs for specific groups of society).

One limitation of existing theoretical research on the impact of housing policies on distribution

outcomes and social welfare is the fact that they rarely distinguish between homeowners, renters and

(absentee or local) landlords and, if so, they do it in a highly stylized way. This is an important

drawback, as house price and rent capitalization has disparate effects for these groups. By separating

these agents, future research could provide more insightful assessments of the distributional and

social welfare impacts of housing policies. Another important limitation of much of the existing

theoretical work is that it is assumed that all income groups spend a similar share of their incomes on

housing expenditures. More recent evidence points to lower income households spending a much

larger share of their incomes on housing, suggesting non-homothetic rather than Cobb-Douglas

preferences.

Most empirical evaluations of housing policies focus on very particular outcome measures such as

homeownership attainment, or prices, or rents. There is little research to date on the wider

35
distributional effects and the political economy of housing policies. Future quantitative research may

also be able to move towards assessments, not only of the effectiveness of policies, but of the overall

cost-efficiency, and of the social net welfare impact.

Most evaluations to date are on policies that either aim to increase homeownership attainment or

subsidize rental housing for lower incomes. There are comparably few rigorous studies focusing on

the margin between renting and becoming homeless. Future research may shed more light on the

relationship between housing affordability and homelessness. In a similar vein, we know comparably

little about the costs and benefits of informal settlements in developing countries and policies that

aim to reduce such settlements. This has in the past been partly driven by lack of reliable data. As

more reliable data becomes available, future research may shed more light on these issues and

policies.

Finally, future research may design and propose institutional reforms that might resolve the

conundrum that some of the most ineffective (and costly) housing policies are politically popular,

whereas policies that could jointly address the root causes of the affordability crisis do not find much

political support. Such policies could include innovative reforms of the planning and tax system. To

sustainably address the broader affordability crisis for moderate- and middle-income households,

planning reforms ought to ensure that planning systems focus on correcting market failures rather

than catering to the self-interest of powerful groups. Tax reforms could be designed such as to better

align the benefits and costs of residential development and, on the demand side, property or land

value taxes could be designed such as to encourage a more efficient use of the scarce resource land.

36
References

Agarwal, S., Amromin, G., Ben-David, I., Chomsisengphet, S., Piskorski, T., & Seru, A. (2017).
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification
Program. Journal of Political Economy, 125(3), 654-712.
Ahlfeldt, G. M., & Maennig, W. (2015). Homevoters vs. leasevoters: A spatial analysis of airport
effects. Journal of Urban Economics, 87, 85–99.
Aliprantis, D., & Hartley, D. (2015). Blowing it up and knocking it down: The local and city-wide
effects of demolishing high concentration public housing on crime. Journal of Urban Economics,
88: 67-81.
Arnott, R. (1995). Time for Revisionism on Rent Control? Journal of Economic Perspectives, 9(1),
99-120.
Autor, D.H, Palmer, C. J., & Pathak P. A. (2014). Housing Market Spillovers: Evidence from the End
of Rent Control in Cambridge, Massachusetts. Journal of Political Economy, 122(3), 661-717.
Badarinza, C., & Ramadorai, T. (2018). Home Away From Home? Foreign Demand and London
House Prices. Journal of Financial Economics, 130(3), 532-555.
Barron, K., Kung, E., & Proserpio, D. (2020). The Effect of Home-Sharing on House Prices and
Rents: Evidence from Airbnb. Marketing Science, 40(1), 23-47.
Basten, C., Ehrlich, M., & Lassmann, A. (2017). Income taxes, sorting and the costs of housing:
evidence from municipal boundaries in Switzerland. The Economic Journal, 127(601), 653–687.
Baum-Snow, N., & Marion, J. (2009). The effects of low income housing tax credit developments on
neighborhoods. Journal of Public Economics, 93(5), 654–666.
Baum-Snow, N., & Han, L. (2020). The Microgeography of Housing Supply. University of Toronto.
Mimeo, University of Toronto, July.
Bergman, P., Chetty, R., DeLuca, S., Hendren, N., Katz, L. F., & Palmer, C. (2019). Creating Moves
to Opportunity: Experimental Evidence on Barriers to Neighborhood Choice. NBER working
paper 26164.
Bernstein, A., & Koudijs, P. (2021). The Mortgage Piggy Bank: Building Wealth through
Amortization. Stanford University Graduate School of Business Research Paper No. 3569252.
Blouri, Y., Büchler, S., & Schöni, O. (2021). The Geography of Housing Subsidies (February 1,
2021). MIT Center for Real Estate Research Paper, 21(05).
Brueckner, J.K. (2014). Eliminate the Mortgage Interest Deduction or Tax Imputed Rent? Leveling
the Real-Estate Playing Field. Cityscape, 16(1), 215-218.
Büchler, S., Ehrlich, M. v, & Schöni, O. (2021). The amplifying effect of capitalization rates on
housing supply. Journal of Urban Economics, 126.

37
Burge, G.S. (2011). Do tenants capture the benefits from the low-income housing tax credit program?
Real Estate Economics, 39(1), 71–96.
Carlson, D., Haveman, R., Kaplan, T., & Wolfe, B. (2012). Long-term earnings and employment
effects of housing voucher receipt. Journal of Urban Economics, 71(1), 128-150.
Carozzi, F. (2020). Credit Constraints and the Composition of Housing Sales. Farewell to First-Time
Buyers? Journal of the European Economic Association, 18(3), 1196-1237.
Carozzi, F., Hilber, C.A.L., & Yu, X. (2021). On the Economic Impacts of Mortgage Credit
Expansion Policies: Evidence from Help to Buy. London School of Economics, mimeo, July.
Carr, J.B., & Koppa, V. (2020). Housing Vouchers, Income Shocks and Crime: Evidence from a
Lottery, Journal of Economic Behavior & Organization, 177, 475-493.
Case, K., & Shiller, R. (1988). The behavior of home buyers in boom and post-boom markets, New
England Economic Review, November/December, 29-46.
Case, K., & Shiller, R. (2003). Is There a Bubble in the Housing Market? Brookings Papers on
Economic Activity, 2, 299-362.
Chaudry-Shah, A. (1988). Capitalization and the Theory of Local Public Finance: An Interpretive
Essay. Journal of Economic Surveys, 2(3), 209-243.
Cheshire, P.C., & Hilber, C.A.L. (2008). Office space supply restrictions in Britain: The political
economy of market revenge. Economic Journal, 118(529), F185–221.
Cheshire, P.C., & Hilber, C.A.L. (2021). Home-Truths—Options for Reforming Residential Property
Taxes in England. London: Bright Blue.
Chetty, R., Hendren, N., & Katz, L. F. (2016). The Effects of Exposure to Better Neighborhoods on
Children: New Evidence from the Moving to Opportunity Experiment. American Economic
Review, 106(4), 855-902.
Chinco, A., & Mayer, C. (2016). Misinformed Speculators and Mispricing in the Housing Market,
The Review of Financial Studies, 29(2), 486-522.
Chyn, E. (2018). Moved to Opportunity: The Long-Run Effects of Public Housing Demolition on
Children. American Economic Review, 108(10), 3028-56.
Collinson, R., & Ganong, P. (2018). How Do Changes in Housing Voucher Design Affect Rent and
Neighborhood Quality? American Economic Journal: Economic Policy, 10 (2), 62-89.
Corinth, K. (2017). The impact of permanent supportive housing on homeless populations. Journal
of Housing Economics, 35, 69–84.
Couture, V., & Gaubert, C., & Handbury, J., & Hurst, E. (2019). Income Growth and the
Distributional Effects of Urban Spatial Sorting, NBER Working Papers 26142.
Cvijanović, D., & Spaenjers, C. (2021). We’ll Always Have Paris: Out-of-Country Buyers in the
Housing Market. Management Science, 67(7), 4120-4138.
38
Dal Bó, E., Dal Bó, P., & Eyster, E. (2018). The demand for bad policy when voters underappreciate
equilibrium effects. The Review of Economic Studies, 85, 964–998.
Davis, M.A., Gregory, J., Hartley, D.A., & Tan, K.T.K. (2021). Neighborhood Effects and Housing
Vouchers, NBER working paper No. 28508.
Deng, Y., Gyourko, J. & Li, T. (2019). Singapore’s cooling measures and its housing market. Journal
of Housing Economics, 45, #101573.
Diamond, R., & McQuade, T. (2019). Who Wants Affordable Housing in Their Backyard? An
Equilibrium Analysis of Low-Income Property Development, Journal of Political Economy,
127(3), 1063-1117.
Diamond, R., D. McQuade, T., & Qian, F. (2019). The Effects of Rent Control Expansion on Tenants,
Landlords, and Inequality: Evidence from San Francisco. American Economic Review, 109(9),
3365-94.
Di Maggio, M., & Kermani, A. (2017). Credit-Induced Boom and Bust, The Review of Financial
Studies, 30(11), 3711–3758.
Disney, R., & Luo, G. (2017). The Right to Buy public housing in Britain: A welfare analysis. Journal
of Housing Economics, 35, 51-68.

Early, D.W. (1998). The role of subsidized housing in reducing homelessness: an empirical
investigation using micro-data. Journal of Policy Analysis and Management, 17(4), 687–696.
Early, D.W. (2004). The determinants of homelessness and the targeting of housing assistance.
Journal of Urban Economics, 55(1), 195–214.
Ehrlich, M.V., C.A.L. Hilber, C.A.L., & O. Schöni, O. (2018). Institutional Settings and Urban
Sprawl: Evidence from Europe. Journal of Housing Economics, 42, 4-18.
Ellen, I.G. (2020). What do we know about housing choice vouchers? Regional Science and Urban
Economics, 80, #103380.
Eriksen, M.D. (2017). Difficult Development Areas and the supply of subsidized housing, Regional
Science and Urban Economics, 64, 68-80.
Eriksen, M. D., & Rosenthal, S. S. (2010). Crowd out effects of place-based subsidized rental
housing: New evidence from the LIHTC program, Journal of Public Economics, 94(11-12), 953-
966.
Eriksen, M. D., & Ross, A. (2015). Housing Vouchers and the Price of Rental Housing. American
Economic Journal: Economic Policy, 7(3), 154-76.
Favara, G., & Imbs, J. (2015). Credit Supply and the Price of Housing. American Economic Review,
105 (3), 958-92.

39
Favilukis, J., & Van Nieuwerburgh, S. (2021). Out-of-Town Home Buyers and City Welfare. The
Journal of Finance, 76, 2577-2638.
Fischel, W.A. (2005). The Homevoter Hypothesis. How Home Values Influence Local Government
Taxation, School Finance, and Land Use Policies. Harvard University [Link], M., &
Owens, E. G. (2011). Low-income housing development and crime. Journal of Urban Economics,
70(2), 115–131.
Fuster, A., & Zafar, B. (2016). To Buy or Not to Buy: Consumer Constraints in the Housing Market.
American Economic Review: Papers and Proceedings, 106(5), 636-640.
Gabriel, S., & Painter, G. (2020). Why affordability matters. Regional Science and Urban Economics,
80, #103378.
Galiani, S., Murphy, A., & Pantano, J. (2015). Estimating Neighborhood Choice Models: Lessons
from a Housing Assistance Experiment. American Economic Review, 105 (11), 3385-3415.
Garmaise, M. J. (2020). Alternative mortgage contracts and affordability. Regional Science and
Urban Economics, 80, #103386.
Genesove, D., & Mayer, C. (2001). Loss Aversion and Seller Behavior: Evidence from the Housing
Market. Quarterly Journal of Economics, 116, 1233-1260.
Glaeser, E.L., & Gyourko, J. (2003). The impact of building restrictions on housing affordability.
Economic Policy Review (Federal Reserve Bank of New York), 9(2), 21–39.
Glaeser, E.L., Gyourko, J., & Saks, R. (2005a). Why Have Housing Prices Gone Up? American
Economic Review Papers and Proceedings, 95(2), 329–333.
Glaeser, E.L., Gyourko, J., & Saks, R. (2005b). Why is Manhattan so Expensive? Regulation and the
Rise in Housing Prices. Journal of Law and Economics, 48(2), 331–369.
Glaeser, E., L., & Luttmer, E.F.P. (2003). The Misallocation of Housing Under Rent Control.
American Economic Review, 93 (4), 1027-1046.
Glaeser, E.L., & Shapiro, J.M. 2003. The Benefits of the Home Mortgage Interest Deduction (pp. 37–
84), in James M. Poterba (ed.) Tax Policy and the Economy, Vol. 17. Cambridge, MA: MIT Press.
Greenwald, D. L., & Guren, A. (2021). Do Credit Conditions Move House Prices? NBER Working
Papers 29391, National Bureau of Economic Research, Inc.
Gruber, J., Jensen, A., & Kleven, H. (2021). Do People Respond to the Mortgage Interest Deduction?
Quasi-Experimental Evidence from Denmark. American Economic Journal: Economic Policy,
13(2), 273-303.
Gyourko, J., & Molloy, R. (2015). Regulation and Housing Supply. In G. Duranton, V. Henderson
and W. Strange (Eds.) Handbook of Regional and Urban Economics, Vol. 5, Chapter 19, 1289-
1337.

40
Gyourko, J., Mayer, C.J., & Sinai, T. (2013). Superstar cities. American Economic Journal: Economic
Policy, 5(4), 167–99.
Henderson, J.V., & Ioannides, Y. (1983). A model of housing tenure choice, American Economic
Review, 73, 98-113.
Hilber, C.A.L. (2005). Neighborhood externality risk and the homeownership status of properties.
Journal of Urban Economics, 57, 213-241.
Hilber, C.A.L. (2014). The Determinants of Homeownership: Panel Data Evidence from Europe.
Mimeo. LSE, August.

Hilber, C.A.L., Lyytikäinen, T., & Vermeulen, W. (2011). Capitalization of Central Government
Grants into Local House Prices: Panel Data Evidence from England. Regional Science and Urban
Economics, 41, 394-406.
Hilber, C.A.L., & Robert-Nicoud, F. (2013). On the Origins of Land Use Regulations: Theory and
Evidence from US Metro Areas. Journal of Urban Economics, 75(1), 29-43.
Hilber, C.A.L., & Turner, T.M. (2014). The mortgage interest deduction and its impact on
homeownership decisions. Review of Economics and Statistics, 96(4), 618-637.
Hilber, C.A.L., & Schöni, O. (2020). On the Economic Impacts of Constraining Second Home
Investments. Journal of Urban Economics, 118.
Hilber, C.A.L., & Mense, A. (2021). Why Have House Prices Risen So Much More Than Rents in
Superstar Cities? CEP Discussion Paper No. 1743, January.
Hilber, C.A.L., & Vermeulen, W. (2016). The Impact of Supply Constraints on House Prices in
England. Economic Journal, 126(591), 255-291.
Jacob, B.A. (2004). Public Housing, Housing Vouchers, and Student Achievement: Evidence from
Public Housing Demolitions in Chicago. American Economic Review, 94(1), 233–258.
Jacob, B.A., & Ludwig, J. (2012). The Effects of Housing Assistance on Labor Supply: Evidence
from a Voucher Lottery. American Economic Review, 102(1), 272-304.
Kaplan, G., Mitman, K., & Violante, G. L. (2020). The Housing Boom and Bust: Model Meets
Evidence. Journal of Political Economy, 128(9), 3285-3345.
Katz, L. F., Kling, J. R., & Liebman, J. B. (2001). Moving to opportunity in Boston: early results of
a randomized mobility experiment. The Quarterly Journal of Economics, 116(2), 607-654.
Kling, J.R., Ludwig, J., & Katz, L. F. (2005). Neighborhood Effects on Crime for Female and Male
Youth: Evidence from a Randomized Housing Voucher Experiment. The Quarterly Journal of
Economics, 120(1), 87-130.
Kling, J. R., Liebman, J. B., & Katz, L. F. (2007). Experimental analysis of neighborhood effects.
Econometrica, 75(1), 83–119.

41
Koster, H.R.A., & van Ommeren, J. (2019). Place-Based Policies and The Housing Market. Review
of Economics and Statistics 101(3), 400-414.
Koster, H.R.A., Van Ommeren, J., & Volkshausen, N. (2021). Short-Term Rentals and the Housing
Market: Quasi-Experimental Evidence from Airbnb in Los Angeles. Journal of Urban Economics,
124, #103356.
Lang, B. J. (2012). Location incentives in the low-income housing tax credit: are qualified census
tracts necessary? Journal of Housing Economics, 21(2), 142–150.
Lang, B. J. (2015). Input distortions in the Low-Income Housing Tax Credit: Evidence from building
size, Regional Science and Urban Economics, 52, 119-128.
Linneman, P., & Wachter, S. (1989). The impacts of borrowing constraints on homeownership.
Journal of the American Real Estate and Urban Economics Association, 17, 389-402.
Ludwig, J., Duncan, G. J., & Hirschfield, P. (2001). Urban poverty and juvenile crime: evidence from
a randomized housing-mobility experiment. The Quarterly Journal of Economics, 116(2), 655-
679.
Ludwig, J., Duncan, G. J., Gennetian, L. A., Katz, L. F., Kessler, R. C., Kling, J. R., & Sanbonmatsu,
L. (2013). Long-term neighborhood effects on low-income families: evidence from moving to
opportunity. American Economic Review, 103(3), 226-231.
Malpezzi, S., & Vandell, K. (2002). Does the low-income housing tax credit increase the supply of
housing? Journal of Housing Economics, 11(4), 360–380.
Mian, A., & Sufi, A. (2021). Credit Supply and Housing Speculation. The Review of Financial
Studies. Forthcoming.
Molloy, R. (2020). The effects of housing supply regulation on housing affordability: A review.
Regional Science and Urban Economics, 80, #103350.
Moon, C.-G., & Stotsky, J. G. (1993). The Effect of Rent Control on Housing Quality Change: A
Longitudinal Analysis. Journal of Political Economy, 101(6), 1114–1148.
Müller, D., & Gsottbauer, E. (2022). Why Do People Demand Rent Control? Available at SSRN:
[Link] or [Link]
Oates, W.F. (1969). The Effects of Property Taxes and Local Public Spending on Property Values:
An Empirical Study of Tax Capitalization and the Tiebout Hypothesis. Journal of Political
Economy 77(6), 957-971.
Oates, W. E. (2005). Property taxation and local public spending: the renter effect. Journal of Urban
Economics, 57(3), 419–431.
O'Flaherty. (1995). An economic theory of homelessness and housing. Journal of Housing
Economics, 4(1), 13–49.

42
O’Flaherty, B. (2004). Wrong person and wrong place: for homelessness, the conjunction is what
matters. Journal of Housing Economics, 13(1), 1–15.
O'Flaherty, B. (2019). Homelessness research: A guide for economists (and friends). Journal of
Housing Economics, 44, 1–25.
O'Flaherty, B., & Wu, T. (2006). Fewer subsidized exits and a recession: How New York city's family
homeless shelter population became immense. Journal of Housing Economics, 15(2), 99–125.
Olsen, E.O. (1972). An Econometric Analysis of Rent Control. Journal of Political Economy, 80(6),
1081-1100.
Olsen, E.O. (2003). Housing Programs for Low-income Households. Means-tested transfer programs
in the United States. University of Chicago Press, 365–442.
Olsen, E.O. (2017). Does Housing Affordability Argue for Subsidizing the Construction of Tax Credit
Projects. Working Paper.
Olsen, E.O., & Zabel, J. E. (2015). US Housing policy. In Handbook of Urban and Regional
Economics, Vol. 5. P. Duranton, G., Henderson, J. V., & Strange, W. C. eds. Amsterdam: North-
Holland.
O'Regan, K.M., & Horn, K.M., 2013. What can we learn about the Low-Income Housing Tax Credit
Program by looking at the tenants? Housing Policy Debate 23 (3), 597–613.
Phillips, D.C. (2017). Landlords avoid tenants who pay with vouchers. Economics Letters, 151, 48-
52.
Quigley, J.M., & Raphael, S. (2005). Regulation and the high cost of housing in California. American
Economic Review: Papers and Proceedings, 95(2), 323–328.
Quigley, J. M., Raphael, S., & Smolensky, E. (2001). Homeless in America, homeless in California.
The Review of Economics and Statistics, 83(1), 37–51.
Ross, S.L., & Yinger, J. (1999). Sorting and Voting: A Review of the Literature on Urban Public
Finance. In The Handbook of Urban and Regional Economics, Vol. 3. P. Cheshire and E.S. Mills,
eds. Amsterdam: North-Holland.
Saks, R.E. (2008). Job creation and housing construction: constraints on metropolitan area
employment growth. Journal of Urban Economics, 64(1), 178–95.
Saiz, A. (2010). The geographic determinants of housing supply. Quarterly Journal of Economics,
125(3), 1253–96.
Sinai, T., & Souleles, N. S. (2005). Owner-Occupied Housing as a Hedge against Rent Risk. The
Quarterly Journal of Economics, 120(2), 763-78.
Sinai, T., & Waldfogel, J. (2005). Do low-income housing subsidies increase the occupied housing
stock? Journal of Public Economics, 89(11), 2137-2164.

43
Slemrod, J. (2006). The role of misconceptions in support for regressive tax reform. National Tax
Journal, 59(1), 57–75.
Solé-Ollé, A. & Viladecans-Marsal, E. (2012). Lobbying, political competition, and local land supply:
Recent evidence from Spain, Journal of Public Economics, 96(1), 10-19.
Soltas, E. (2021). The Price of Inclusion: Evidence from Housing Developer Behavior. Mimeo, MIT,
October.
Sommer, K., & P. Sullivan. 2018. Implications of US Tax Policy for House Prices, Rents, and
Homeownership. American Economic Review, Vol. 108, No. 2, 241-274.
Somerville, T., Wang, L., & Yang, Y. (2020). Using purchase restrictions to cool housing markets: a
within-market analysis. Journal of Urban Economics, 115, #103189.
Susin, S. (2002). Rent vouchers and the price of low-income housing. Journal of Public Economics,
83(1), 109-152.
Tsivanidis, N. (2019). Evaluating the impact of urban transit infrastructure: Evidence from Bogotá’s
TransMilenio. Mimeo, UC Berkeley, June.
Turner, T.M. (2003). Does investment risk affect the housing decisions of families? Economic Inquiry
41, 675-691.
Waldinger, D. (2021). Targeting In-Kind Transfers through Market Design: A Revealed Preference
Analysis of Public Housing Allocation. American Economic Review, 111(8), 2660-96.
Wallace, J. (1995). Financing affordable housing in the United States. Housing Policy Debate, 6,
785–814.
Weinhardt, F. (2014). Social Housing, Neighborhood Quality and Student Performance, Journal of
Urban Economics, 82, 12–31.
Williamson, A.R. (2011). Can They Afford the Rent? Resident Cost Burden in Low-Income Housing
Tax Credit Developments. Urban Affairs Review, 20(10), 1–25.
Wu, J., Gyourko J., & Deng, Y. (2012). Evaluating the conditions in major Chinese housing markets.
Regional Science and Urban Economics, 42, 531-543.

44
CENTRE FOR ECONOMIC PERFORMANCE
Occasional Papers

55 Richard Davies Prices and inflation in the UK – A new dataset

54 Christian Krekel Are happier people more compliant? Global evidence

Sarah Swanke from three large-scale surveys during Covid-19
Jan-Emmanuel De Neve lockdowns
Daisy Fancourt

53 Nicolas González-Pampillón Regional differences in UK transport BCRs: An

Henry.G. Overman empirical assessment

52 Jonathan Wadsworth Labour markets in the time of Coronavirus: measuring

excess

51 Morten Bennedsen Preserving job matches during the Covid-19 pandemic:

Berthe Larsen firm-level evidence on the role of government aid
Ian Schmutte
Daniela Scur

50 Lindsay E. Relihan Marvin The early impact of COVID-19 on local commerce:

M. Ward Jr. Chris W. Changes in spend across neighborhoods and online
Wheat
Diana Farrell

49 Richard Layard When to release the lockdown? A wellbeing

Andrew Clark framework for analysing costs and benefits
Jan-Emmanuel De Neve
Christian Krekel
Daisy Fancourt
Nancy Hey
Gus O’Donnell

48 Jack Blundell Clusters in UK Self-Employment

47 Jonathan Wadsworth Immigration

46 Nicholas Bloom Renata International Data on Measuring Management

Lemos Raffaella Sadun Practices
Daniela Scur
John Van Reenen
45 Alex Bryson The UK’s Productivity Puzzle
John Forth

44 Max Nathan Mapping Information Economy Businesses with Big

Anna Rosso Data: Findings for the UK

43 Luis Garicano Knowledge-based Hierarchies: Using Organizations to

Esteban Rossi-Hansberg Understand the Economy

42 Chiara Criscuolo Dynemp: A Stata® Routine for Distributed Micro-data

Peter N. Gal Analysis of Business Dynamics
Carlo Menon

41 Nicholas Bloom The New Empirical Economics of Management

Renata Lemos
Raffaela Sadun
Daniela Scur
John Van Reenen

40 Ghazala Azmat Gender and the Labor Market: What Have We Learned
Barbara Petrongolo from Field and Lab Experiments?

39 Christopher J. Boyce Money, Well-Being, and Loss Aversion: Does an

Alex M. Wood Income Loss Have a Greater Effect on Well-Being
James Banks than an Equivalent Income Gain?
Andrew E. Clark
Gordon D.A. Brown

38 Nicholas Bloom Fluctuations in Uncertainty

37 Nicholas Oulton Medium and Long Run Prospects for UK Growth in

the Aftermath of the Financial Crisis

36 Phillipe Aghion Incomplete Contracts and the Internal Organisation of

Nicholas Bloom Firms
John Van Reenen

For more information please contact the Publications Unit

Tel: +44 (0)20 7955 7673; Email: [Link]@[Link]
Website [Link]