Who Gains When Neighborhoods Rebuild? Redevelopment, Sorting, and Housing Affordability
Published:
with Guangbin Hong (New Draft)
Previously circulated as “Redevelopment and Gentrification in General Equilibrium”
Abstract:
How does housing supply affect affordability and welfare when new housing replaces the existing stock? We document that redevelopment upgrades housing quality without adding units and raises neighborhood housing prices and average income. We then develop a dynamic spatial model with forward-looking landlords renovating or redeveloping a depreciating stock, income sorting across neighborhoods and housing qualities, and endogenous neighborhood amenities. We estimate the redevelopment elasticity using quasi-experimental variation from an anti-redevelopment policy in Chicago. We find that redevelopment lowers rents for high-quality housing yet raises rents for low-quality housing. Restricting redevelopment in gentrifying neighborhoods leaves all but the poorest households worse off and shifts redevelopment to untreated low-income neighborhoods. Endogenous amenities shape the local and city-wide effects of redevelopment and of policies seeking to reduce housing costs.