Do homeowners benefit urban neighborhoods? evidence from housing prices

Mika Kortelainen and Tuukka Saarimaa

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Homeownership is heavily subsidized in many countries mainly through the tax code. The adverse effects of lenient tax treatment of owner-occupied housing on economic efficiency and growth are large and well documented in the economics literature. The main argument in favor of subsidizing owner-occupied housing is that it creates positive externalities that offset these adverse effects. This paper tests whether homeowners create positive externalities to their immediate neighbourhood that capitalize into housing prices in multi-storey buildings. Using semiparametric hedonic regressions with and without instrumental variables we find no evidence of positive externalities from neighbourhood homeownership rate. This result is robust to relaxing the identification assumptions of our instrument using a recently developed set identification method. Our results suggest that the adverse efficiency effects of lenient tax treatment of owner-occupied housing are not offset by positive externalities.

Keywords: homeownership; neighbourhood effects; partial linear model; set identification (search for similar items in EconPapers)
JEL-codes: D62 R21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2012-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://eprints.lse.ac.uk/57923/ Open access version. (application/pdf)

Related works:
Working Paper: Do Homeowners Benefit Urban Neighborhoods? Evidence from Housing Prices (2012)
Working Paper: Do homeowners benefit urban neighborhoods? Evidence from housing prices (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:57923

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