Carrot & Stick Policies and the Housing Affordability Puzzle: Redevelopment with Durable Assets in a Spatial Equilibrium

We develop a forward-looking spatial model of real estate redevelopment in which regulatory and fiscal instruments enter developers’ timing and density decisions. We also allow anticipated construction to feed back into rents through aggregate supply and local spillovers. Calibrated to parcel-level data from New York City, the model shows that tax exemptions accelerate redevelopment on parcels near their investment threshold, while density bonuses expand project scale but can delay construction. Both incentives increase housing production but do not reliably lower average rents because redevelopment primarily entails replacing low-rise, depreciated structures with higher-rent new construction. Affordability mandates reallocate production toward lower-rent units but weaken redevelopment unless paired with sufficiently strong incentives, revealing a structural tension between affordability, expansion, and stock renewal in durable housing markets.