Dynamic Urban Economics

We develop a dynamic urban model that incorporates key elements of macro-housing models into an internal city structure with commuting. The model includes many locations, costly migration, forward-looking households, life cycle dynamics, income risk, homeownership choice, and housing frictions. Our solution method avoids the curse of dimensionality from commuting, efficiently computing steady states and transition dynamics. Using a model of San Francisco, we show that our dynamic framework produces qualitatively different welfare effects of local shocks and policies from traditional static models. Our results highlight the role of homeownership and explain why welfare-improving policies often face local opposition.