Green Power

MODELED WISDOM

Modeling policy levers for housing affordability in urban centers

In nearly every major urban center, housing affordability is in crisis. Since the 1960s, median home value has risen by 112% across the country, while median owner incomes rose just 50%. For renters, especially since 2008, the problem is increasingly acute:nearly half of renters (over 20 million people) pay over 30% of their income on rent.

In New York City, nearly two-thirds of all residents are renters (half of whom are rent-burdened), and the politics of housing policy remain correspondingly fraught. In a recent paper, researchers JACK FAVILUKIS, PIERRE MABILLE, and STIJN VAN NIEUWERBURGH at Columbia Business School develop a dynamic stochastic spatial equilibrium model to quantify the welfare implications of various policy tools. Calibrating the model to New York City, the authors examine the interactions between funding and affordability policies to chart a possible path forward. From the paper:

“Policy makers are under increasing pressure to improve affordability. They employ four broad categories of policy tools: rent control (RC), zoning policies, housing vouchers, and tax credits for developers. Each policy affects the quantity and price of owned and rented housing and its spatial distribution. It affects incentives to work, wages, commuting patterns, and ultimately output. Each policy affects wealth inequality in the city and in each of its neighborhoods.

While there is much work, both empirical and theoretical, on housing affordability, what is missing is a general equilibrium model that quantifies the impact of such policies on prices and quantities, on the spatial distribution of households, on income inequality within and across neighborhoods, and ultimately on individual and city-wide welfare. Consistent with conventional wisdom, increasing the housing stock in the urban core by relaxing zoning regulations is welfare improving. Contrary to conventional wisdom, increasing the generosity of the rent control or housing voucher systems is welfare increasing.”

Link to the paper, and link to a press release from Columbia Business School.

• Data for Progress analyzed housing proposals from the leading 2020 candidates. Link to the reports, and link to an updated version of Senator Warren’s proposal.
• A report from last spring by authors Peter Gowan and Ryan Cooper advocates for an across-the-board expansion of social housing in the United States. Link.
• Tangentially related, a JFI letter from last year highlighted thinking and proposals around the implementation of a land value tax. Link.

New Researchers: WARM GLOW

A paper on solar panels: their costs, quality, and consumers

In a wide-ranging job market paper, JIN CHEN scrutinizes subsidies for residential solar panels in California, finding that “over half of the subsidies fail to reduce prices to consumers,” and that there’s a pattern to which solar suppliers win out: “Large suppliers capture almost all the subsidy benefits whereas small and local suppliers concede the majority of the benefits to customers.” Chen goes on to note that solar panel suppliers target two different kinds of consumers, the environmentally-motivated group and the economically-motivated group. The solar suppliers make separate appeals:

“The suppliers that focus mainly on the more environmentally oriented consumers tend to spend large sums of money on advertising. These advertisements focus on highlighting the climate benefits of installing a rooftop solar system. The suppliers that focus on the less environmentally oriented consumers tend to spend very little on advertising, primarily on the design of their websites. The advertisements on their websites are mainly about the economic benefits of a rooftop solar system. These two strategies have different implications regarding the extent to which subsides reduce the prices to consumers and increase the subsequent sales volume.”

In the end, “environmentally focused consumers purchase from the top solar sellers whose solar systems are of lower quality.” Chen is set to complete her PhD in economics at Stanford in June. View the paper here and view her site here.

Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you’d like to see shared here? Send it our way: editorial@jainfamilyinstitute.org.

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• JFI partnered with a Harvard Kennedy School capstone project on algorithmic decision-making systems. View the final project, “Automating NYC,” a general-interest, interactive overview of concerns about algorithms in government, here.
• A new paper from the People’s Policy Project covers climate innovation policy, calling for new government funding for research and development—and, in a classic 3P suggestion, new publicly-owned venture capital funds. Link.
• The syllabus and final exam for a 1970 undergraduate econ course taught by Thomas Schelling titled “Conflict, Coalition, and Strategy.” From the exam questions: “Assuming that the hypothesis which Mill discusses is true (that nobleness in itself detracts from individual happiness), under what conditions would you expect individuals to choose to develop noble characters?” Link.
• From Augustus Odena at Distill: Seven open (technical) questions on generative adversarial networks. Link.
• Nobel Prize winning economist Lars Peter Hansen on evidence-based policy, or the lack thereof:”Prudent and smart decisions don’t require full knowledge. They require that you assess the uncertainty and figure out its potential consequences. The uncertainty doesn’t mean that you simply cross your arms, close your eyes, and do nothing while you wait for complete certainty. In economics, you will be waiting a long time.” Link.
• Peter Sloman provides a comprehensive and fascinating history of universal basic income in the UK. The article identifies five waves of enthusiasm for basic income in Britain and finds that “interest in the proposal has been greatest at times of pessimism about the future of the labor market.” Link.
• “When and where can climate policy succeed?” An interview on carbon pricing, tax credits, standards, and more with Barry Rabe and Leah Stokes by Matt Grossmann of Niskanen. Link.
• At VoxEU, Thomas Blanchet, Lucas Chancel, and Amory Gethin compile all existing sources on income inequality to document its 40 year rise in Europe. Link.
• Do private prisons affect criminal sentencing? Yes. Christian Dippel and Michael Poyker find that “the opening of a private prison increases the length of sentences relative to what the crime’s and defendant’s characteristics predict.” Link. See also: Poyker’s findings on the economic consequences of the U.S. convict labor system. Link.
• From Jeffrey Sachs and Mark Weisbrot at CEPR, a new report on US sanctions on Venezuela: “It finds that most of the impact of these sanctions has not been on the government but on the civilian population. The sanctions reduced the public’s caloric intake, increased disease and mortality (for both adults and infants), and displaced millions of Venezuelans who fled the country as a result of the worsening economic depression and hyperinflation.” Link.
• “Notably, the one section of medieval society that embraced poor hygiene was the clergy. For the medieval religious, parasites (both those that afflicted the living and those that consumed the dead) were a popular focus for contemplation, since they served as an important reminder of the frailties of the flesh. Medieval holy men and women who spent their lives itching and scratching, parasites served as a form of asceticism—a way of disciplining their bodies, like fasting or flagellation, and thus proving the depth of their faith. In the later middle ages, clerical identity rested heavily on the idea that the clergy were different from the laity. This difference was most obviously reflected in the papal prohibitions on clerical marriage and clerical violence, and also in the wearing of distinctive vestments. But perhaps the clergy, and especially the monastic orders, were also set aside by their attitude to parasites. Most medieval people, if infected, would treat their parasites, and expect those treatments to work. Whereas the clergy, in this as in so much else, were different: they embraced what everyone else tried their best to avoid, or else cure.” An essay by Katherine Harvey. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org