Monocentric analysis of restricting the budget share of housing alone or with transportation

Considering the prolonged rise of energy price and the still elevated housing prices, the policy to limit the share of housing expenses in the households' budget, so as to secure their solvability, has been criticized. Supposedly, it induces people to get farther from the city center in search for cheaper housing prices, but with subsequent increased transportation costs that are often disregarded during the house search process. Therefore, to improve the well-being of households, it has been advocated to set a constraint on the share of both housing and transportation expenditure. The paper is purported to analyze and compare the effects of the two policies in terms of: 1. Well-being of the households; 2. Land-use: city size and density curve; 3. Solvability of the households; 4. Transportation costs. The analysis is carried out within the classical monocentric model of urban economics. After setting a general analysis, an applied model is specified to capture the effects of each policy in straightforward formulae. It is shown that constraining housing expenses may increase the well-being of households. Besides, both policies prove effective in reducing urban sprawl and hereby energy consumption. Thus the choice of the optimal policy will depend on the local authority's objectives.