Can More Housing Supply Solve the Affordability Crisis? Evidence from a Neighborhood Choice Model

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...

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Bibliographic Details
Published in:Finance and economics discussion series 2018-05, Vol.2018 (35)
Main Authors: Anenberg, Elliot, Kung, Edward
Format: Article
Language:English
Subjects:
Economic models
Neighborhoods
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Summary: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.
ISSN:1936-2854
DOI:10.17016/FEDS.2018.035