City affordability and residential location choice: A demonstration using agent based model

Abstract

Who lives where and why? – is a prominent issue studied in the field of urban economics. With urbanization on the rise, housing and transportation policies must strive to strike a balance between accessibility and affordability. The study builds an economic rational agent-based model, for a hypothetical monocentric city, to simulate the urban pattern that emerges from households' residential location choice as they aim to minimize their expenditure on rent and commute under different scenarios. The model highlights the significance of housing and transportation costs as a spatial policy tool in shaping urban growth. By manipulating these costs, cities can promote compactness, increase affordability, and result in a more homogeneous density and income distribution pattern. The study also finds that mode of travel plays a crucial role in determining residential choice, with private transportation users tending to reside in the city's inner areas and public transportation users opting for outer areas. However, when public transportation is heavily subsidized, this pattern is reversed. We also find that an increase in income inequality and plot size variability can lead to income-based segregation in the city. Our study findings, validated through a review of the relevant empirical literature, provide valuable policy directions into the underlying mechanisms that shape the urban growth pattern.