This paper documents an unprecedented decrease in young homeownership since the Great Recession driven by regions with high house prices. Using a panel of U.S. metro areas, I calibrate an equilibrium spatial macro-finance model with overlapping generations of mobile households. The dynamics of regional housing markets is explained by an aggregate credit contraction with heterogeneous local impacts rather than by local shocks. Lower millennial income and wealth amplify its effect. The impact of subsidies to first-time buyers is dampened, because they fail to stimulate regions that suffer from larger busts. Place-based subsidies achieve larger gains.

Housing affordability is the main policy challenge for most large cities in the world. Zoning changes, rent control, housing vouchers, and tax credits are the main levers employed by policymakers. How effective are they at combatting the affordability crisis? We build a dynamic stochastic spatial equilibrium model to evaluate the effect of these policies on the well-being of its citizens. The model endogenizes house prices, rents, construction, labour supply, output, income, and wealth inequality, the location decisions of households within the city as well as inter-city migration. Its main novel features are risk, risk aversion, and incomplete risk-sharing. We calibrate the model to the New York metropolitan statistical area. Housing affordability policies carry substantial insurance value but affect aggregate housing and labour supply and cause misallocation in labour and housing markets. Housing affordability policies that enhance access to this insurance especially for the neediest households create substantial net welfare gains.