Long-term housing affordability in spatial general equilibrium

We argue that housing affordability is as much about incomes as it is about house prices. Consequently, a comprehensive analysis of housing affordability should be conducted in which incomes and house prices are determined through the specification of labor, capital and product markets in addition to housing markets. A spatial econometric model for Israel is used to study the effects on the regional distribution of housing affordability of income generating shocks in labor and capital markets, as well as supply shocks in housing markets. Particular attention is paid to the effects on affordability of planning delays in tendering land for housing construction and the issue of building permits. Spatiotemporal impulse responses for housing affordability show that region-specific shocks, such as accelerated planning permission and the provision of regional investment grants, percolate across the economy as a whole. Implications for place-based regional policy are discussed.