Job market paper

Should Governments Subsidize Homeownership? A Quantitative Analysis of Spatial Housing Policies

Should governments promote homeownership? Although such policies are widespread, their welfare implications are not straightforward. While subsidizing homeownership can overcome financial frictions, it can also reduce internal migration and increase the spatial misallocation of labor. To address this question, I build a dynamic spatial equilibrium model with coresidence, homeownership, internal migration, and savings decisions. Homeownership provides utility and insurance against aggregate rental price risk but reduces migration due to the transaction costs associated with selling the property. Migration decisions, in turn, affect homeownership. In particular, non-migrant workers can coreside with their parents, which allows them to save and buy a house earlier than migrants. I develop a new strategy to solve dynamic spatial models with aggregate uncertainty, which models agents' expectations about local endogenous prices and wages using lower-rank factors. The model is estimated for Spain and validated using quasi-experimental evidence from recent place-based homeownership subsidies. I find that mortgage interest deduction policies are welfare-increasing, have majority support, and reduce wealth inequality. However, they decrease internal migration and do not improve the spatial allocation of labor.

Working Paper

Labor Market Power Across Cities. Revise and resubmit at Journal of the European Economic Association.

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