Essays on the Spatial Distribution of Income and Housing in Cities

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Li, Meng
Residential Sorting , Monocentric Model , Inequality , Assignment Model , Gentrification , Neighborhood Externalities
My dissertation consists of three main chapters on the spatial distribution of income and housing in cities. Chapter 2 studies the potential role of alternative commuting choices in determining the variations in residential patterns within a city. I develop an assignment approach to the monocentric city model that features continuous income distribution, income-dependent commuting costs, and endogenous housing supply. In equilibrium, the relative location of households depends the relative size of the income elasticity of marginal commuting costs and the income elasticity of housing demand. I apply the approach to study the effects of commute mode choice on residential sorting. Having commute mode choice can potentially generate non-monotonic income-location relationships. The existence of such equilibria, however, is not guaranteed in the model with commute mode choice. Chapter 3 extends the approach developed in Chapter 2 to study the effects of rising income inequality on residential patterns and house prices within a city. The key feature of the model is that the net cost of living further the city centre consists of a common component, and a component that is increasing with income. The model can generate imperfect sorting of income across locations: there is income mixing at non-central locations; households at the top and bottom of the income distribution compete for central locations. When income inequality increases, the changes in equilibrium resemble the gentrification phenomenon. A greenbelt places pressures on house prices and reduces welfare when inequality increases, and the welfare loss is most significant for low-income households. Chapter 4 studies the role of endogenous neighborhood amenities in driving the concentration of rich households near the city center in a monocentric city model. The two key assumptions of the model are: (i) rich households have higher preference for city-type amenities; (ii) the amenity level depends on the location of high-income households in the city: living closer to the rich provides better access to amenities. I show that within the city, higher density near the city center facilitates provision of amenities, making the central locations more attractive for the rich. Endogenous amenities near the city center drive up unit housing price across the city.
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