Weekend Reading


A new post full of fun things to read this weekend in the realm of state and local government law


1. City-wide effects of new housing supply: Evidence from moving chains, Cristina Bratu, Oskari Harjunen, and Tuukka Saarimaa (HT: Stephen Smith)


Abstract:


We study the city-wide effects of new, centrally-located market-rate housing supply using geo-coded total population register data from the Helsinki Metropoli- tan Area. The supply of new market rate units triggers moving chains that quickly reach middle- and low-income neighborhoods and individuals. Thus, new market- rate construction loosens the housing market in middle- and low-income areas even in the short run. Market-rate supply is likely to improve affordability outside the sub-markets where new construction occurs and to benefit low-income people.


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It is long been known to economists that new housing supply leads to lower prices. This is in part because housing 'filters' or becomes less valuable over time (like all depreciating assets) and in part due to the ordinary effect of supply on prices. It turns out this happens even in very small geographies -- new housing drives down prices nearby, even when it comes with new amenities. This is largely due to its effects on breaking up homeowner cartels that protect the value of their homes using land use controls.


But figuring out exactly how this works operationally has been quite difficult. One of my favorite papers of last year, Evan Mast's The Effect of New Market-Rate Housing Construction on the Low-Income Housing Market, showed that new construction created a chain that reduced prices. People who moved into the new building would move out of their old places, freeing up apartments and driving down prices even among those who couldn't afford new construction. "I illustrate