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CEP discussion paper
Spillover effects from new housing supply
Nicolás González-Pampillón
November 2019
Paper No' CEPDP1660:
Full Paper (pdf)

JEL Classification: R23; R30; R58

Tags: housing supply; house prices; neighborhood change; crime; difference-in-differences; housing policies

I estimate spillovers from new housing supply on house prices, crime rates, and household income. To estimate these effects, I use exogenous variation in supply induced by a housing subsidy implemented in middle-income neighborhoods in the city of Montevideo. The program incentivized residential development through tax breaks that led to sizable investments in certain neighborhoods. I exploit the spatial structure of the scheme to identify the externalities and find clear evidence of spillovers from new supply on house prices, with prices increasing between 12 and 17%. Property crime rates only decreased in the short term, while there is evidence of an increase in household income, suggesting that the neighborhood income mix responded to the supply expansion. Increasing supply appears to revitalize neighborhoods, but these effects also reduce housing affordability.