Can Public Construction and Rehabilitation Increase the Quantity of Housing Service Consumed by Low-Income Families?

by Edgar O. Olsen

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This paper demonstrates, via a demand theory of Muth, that public construction and rehabilitation have no effect on the long run equilibrium quantity of housing service. This theory makes clear that it is the subsidy which accompanies public construction that results in greater consumption of housing. Under simple assumptions concerning human behavior and market structure, the author deduces the reactions of buyers and sellers of housing service to a government program in which dwelling units are purchased, destroyed, and rebuilt or rehabilitated and then marketed by the government without subsidy. If this public action is unanticipated, then there will be a short run increase in the quantity of housing consumed, but in long run equilibrium the consumption by each individual will be the same as prior to government action. In the case of perfect anticipation, public construction would not even increase the quantity of housing consumed in the short run. 12 pp. Ref.

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