Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Curbing Rising Housing Costs: A Model-Based Policy Comparison
Journal of Economic Perspectives
(pp. 27–44)
(Complimentary)
Abstract
Recent decades have seen house prices grow strongly relative to incomes, making housing ever less affordable. We develop and quantify a model of segmented housing markets to study the drivers of rising housing costs and to evaluate policies aimed at curbing these costs. We show that rising wealth dispersion, together with stagnating housing supply, can explain the observed increase in housing costs. Demand-side policies such as down payment assistance and mortgage interest deductions inadvertently cause upward pressure on house prices and exacerbate unaffordability. Supply-side policies such as tax credits for development or construction of affordable housing lower house prices by increasing the housing stock. Which type of new housing is built matters: new construction in the high-end segments improves affordability by more in all segments of the housing market compared to new construction in bottom-end segments.Citation
Abramson, Boaz, and Tim Landvoigt. 2025. "Curbing Rising Housing Costs: A Model-Based Policy Comparison." Journal of Economic Perspectives 39 (3): 27–44. DOI: 10.1257/jep.20241427Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R31 Housing Supply and Markets