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Suburbanization and Homeownership Rates


Köhler, Wolfgang R (2008). Suburbanization and Homeownership Rates. Working paper series / Institute for Empirical Research in Economics No. 382, University of Zurich.

Abstract

Homeownership rates in suburbs are much higher than in central cities. This paper shows that the systematic difference between homeownership rates causes suburbanization. We consider an economy with several regions: the central city, where most households rent, and the suburbs, where most own. Households migrate and vote on local policies. Renters do not consider the effect of policies on house prices. Therefore, renter dominated central cities provide public goods inefficiently and have high taxes and high debt. Since house prices are lower in the central city, few houses are built and households migrate to the suburbs as houses depreciate. The durability of houses has two effects: it provides owners with incentives to vote for efficient policies and it makes inefficient policies sustainable.

Abstract

Homeownership rates in suburbs are much higher than in central cities. This paper shows that the systematic difference between homeownership rates causes suburbanization. We consider an economy with several regions: the central city, where most households rent, and the suburbs, where most own. Households migrate and vote on local policies. Renters do not consider the effect of policies on house prices. Therefore, renter dominated central cities provide public goods inefficiently and have high taxes and high debt. Since house prices are lower in the central city, few houses are built and households migrate to the suburbs as houses depreciate. The durability of houses has two effects: it provides owners with incentives to vote for efficient policies and it makes inefficient policies sustainable.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:July 2008
Deposited On:29 Nov 2011 22:47
Last Modified:12 Aug 2017 13:05
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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