The Externality of Large-scale Affordable Housing Construction
Affordable housing projects are thought to affect neighboring property values. Negative spillover effects are more likely in developing countries when governments fail to provide complementary infrastructure and public services such as schools. In this paper, we study one of the world’s largest affordable housing projects, the Mehr housing project in Iran. This program facilitated the housing construction of 2 million affordable apartments.
Using the universe of house transactions in 19 large cities and the exact timing and location of Mehr units, we employ a difference-in-differences methodology to estimate the causal impact of Mehr units on neighbouring properties. Our results show that affordable housing reduced nearby housing prices by 11 percent. This negative effect is absent in neighborhoods that saw a proportionate school expansion suggesting that the absence of schools is one of the main underlying causes of the negative spillover.
