Pecuniary effects of public housing demolitions: Evidence from Chicago

Abstract

This paper studies the effects of public housing on private house prices. I examine the impact of a large and negative housing supply shock caused by the demolition of public housing developments in Chicago in the 1990s and 2000s. By comparing census tracts near demolitions to a synthetic control composed of tracts in distant parts of the city, I estimate that house prices increased by up to 20 percent over a ten-year period in census tracts near the demolitions. I provide evidence of similar long-run rent increases and show that households living in these areas after demolitions are higher-income and less likely to be black than previous residents. A calibration exercise indicates that reduced housing supply can fully explain the observed price changes under some assumptions, although the wide range of estimates and the demographic effects of demolitions suggest that demand factors may have also contributed to price increases.