Testing the supply response to housing allowances : an experimental design

by Ira S. Lowry, C. Peter Rydell, David M. De Ferranti

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Proposes an experimental design for testing supply response to housing allowance demand. Problems include (1) quantifying changes in housing service flow, (2) creating a small-scale market, (3) focusing and stabilizing demand, (4) observing responses long enough to perceive trends, (5) distinguishing experimental from background effects, and (6) making results broadly intelligible. The best design requires small urban neighborhoods with well-defined boundaries and predominantly rental housing, half the residents eligible, the rest not much above the income limit. The proposed modular experiment, with six variants for different neighborhoods, would cost (per module) $2.25 million annually, over five years; extension to an entire metropolitan area, $35 million annually. Appendixes discuss a production function model for housing services; measuring changes in housing service inputs; causes of housing price increases; capital price, maintenance, and operating cost indexes; linking supply and demand experiments; seven experimentally suitable Los Angeles neighborhoods; and estimating program effects on nonparticipants.

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