Time and space matter: How urban transitions create inequality

An increase in transportation costs impacts the welfare of households living on the outskirts of the city more than the other inhabitants and, in the short term, limited housing supply stops them from moving toward the center. Over a longer period, however, urban adjustments cancel out this inequality: (1) in the center, rent level rises because of higher demand, inducing investment in additional housing and increasing city density; (2) on the outskirts, housing demand decreases until rent level decreases and compensates for higher transportation expenditures. Inertia in housing supply and household re-locations leads, therefore, to the development of spatial inequalities.To investigate this issue, we built a dynamic model that reproduces urban transitions in monocentric cities, and enables quantifying in continuous time their spatialized consequences. Applied to the implementation of a transportation tax, the model suggests that a rapid implementation would induce (i) higher welfare losses than can be inferred from traditional models and (ii) major redistributive effects throughout the city. Finally, the model suggests that an early and progressive implementation is to be preferred to late and aggressive action.These results challenge current assessment methods of climate change stabilization strategies and show that it is essential to take into account urban dynamics and inequalities in the design of climate policy.