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Board of Governors of the Federal Reserve System (U.S.)
Finance and Economics Discussion Series
Can More Housing Supply Solve the Affordability Crisis? Evidence from a Neighborhood Choice Model
Elliot Anenberg
Edward Kung
Abstract

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


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Elliot Anenberg & Edward Kung, Can More Housing Supply Solve the Affordability Crisis? Evidence from a Neighborhood Choice Model, Board of Governors of the Federal Reserve System (U.S.), Finance and Economics Discussion Series 2018-035, 15 May 2018.
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Keywords: Housing affordability ; Housing supply ; Neighborhood choice
DOI: 10.17016/FEDS.2018.035
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