How budget trade‐offs undermine electoral incentives to build public housing

Abstract Housing shortages and rising rents have increased demands for affordable housing. In this paper, we examine whether electoral constraints can undermine local politicians' incentives to build public housing. Empirically, we draw on the full‐count census of all housing built in Germany, data on 19,685 local elections between 1989 and 2011, and an original survey. Using a difference‐in‐differences design, we demonstrate that incumbents are not rewarded, but rather experience moderate electoral losses after constructing new public housing. We then show that these losses are not primarily driven by homeowner opposition or native–foreigner competition. Instead, electoral punishment is largest in economically disadvantaged municipalities with relatively affordable housing, as voters prioritize spending in other local policy areas that are crowded out by public housing. Survey evidence demonstrates that electoral constraints emerge when voters' short‐term spending preferences conflict with municipalities' long‐term goals to provide affordable housing.