Kwok-Hao Lee - National University of Singapore

We consider the design of a large-scale public housing program where consumers face dynamic tradeoffs over apartments rationed via lotteries and prices. We show, theoretically and empirically, that changing rules complements increasing supply. First, we present a motivating example in which supplying more housing leads households to strategically delay their applications. By waiting for ‘better' developments arriving tomorrow, households forgo mediocre developments available today, resulting in more vacancies. Turning to the data from the mechanism, we formulate a dynamic choice model over housing lotteries and estimate it. Under the existing mechanism, we find that increasing supply fails to lower wait times. However, when a strategy-proof mechanism is implemented, vacancies and wait times fall, but prices on the secondary market rise. Under this new mechanism, building more apartments lowers wait times and reduces the upward pricing pressure on the secondary market