Association for Public Policy Analysis & Management

The economics literature has suggested that restrictions on the supply of new housing in major cities leads to scarcity and increases its price. To remedy this scarcity, the literature recommends policies that encourage redevelopment at higher density to increase the aggregate stock of housing. However, new housing added through redevelopment replaces low-quality low-cost housing with high-quality high-cost housing. Therefore, promoting redevelopment may increase housing prices even as the total supply increases. We introduce a structural model of the redevelopment process and use a novel panel of micro-level construction data for Philadelphia to understand residential redevelopment decisions and their impact on the price and quality of housing. Our estimates indicate the importance of taking into account the impact on existing housing stock when encouraging redevelopment to combat housing shortages.