Beggar thy neighbour,beggar thy neighbourhood

Neighbourhood effects and the economies of housing consumption are, independently, thoroughly researched topics in the urban economics literature. Little has been said, however, about the effects of housing consumption restrictions on the dispersal of neighbourhood effects to different economic groups. At a time of rising public concern about economic inequality, properly understanding the link between housing market restrictions and neighbourhood effects across the income spectrum is of increasing importance. This paper proposes a model to better assess how labour productivity as influenced by neighbourhood effects changes with restrictions in housing consumption. The results of the model show that except in the case where no labour complementarity exists between the high and low‐skilled population segments, housing restrictions excluding the poor from the better‐off neighbourhoods will lead to welfare losses for both populations.