Do Urban Neighborhoods Benefit from Homeowners? Evidence from Housing Prices

Homeownership is heavily subsidized in most countries. The adverse effects of this policy on economic efficiency and income distribution are well documented in the economics literature. The main argument in favor of subsidizing homeownership is that it creates positive externalities that offset thes...

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Bibliographic Details
Published in:The Scandinavian journal of economics 2015-01, Vol.117 (1), p.28-56
Main Authors: Kortelainen, Mika, Saarimaa, Tuukka
Format: Article
Language:English
Subjects:
Buildings
D62
Economic efficiency
Economic policy
Economic theory
Efficiency
Government subsidies
Home ownership
Homeownership
Housing prices
Income distribution
neighborhood externalities
R21
R28
Regression analysis
semi-parametric regression
set identification
Studies
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Summary:Homeownership is heavily subsidized in most countries. The adverse effects of this policy on economic efficiency and income distribution are well documented in the economics literature. The main argument in favor of subsidizing homeownership is that it creates positive externalities that offset these adverse effects. In this paper, we test whether homeowners create positive externalities that capitalize into housing prices in multi-storey buildings. Using semi-parametric hedonic regressions with and without instrumental variables, we find no evidence of positive externalities, although the results with instrumental variables are somewhat imprecise. This result is robust to several sensitivity checks and to a relaxation of the identification assumptions of our instrument using set identification.
ISSN:0347-0520
1467-9442
DOI:10.1111/sjoe.12090