Do homeowners benefit urban neighborhoods? Evidence from housing prices

Tuukka Saarimaa and Mika Kortelainen

No 36, Working Papers from VATT Institute for Economic Research

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 neighborhood 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 neighborhood 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 owneroccupied housing are not offset by positive externalities.

Keywords: Homeownership; neighborhood effects; partial linear model; set identification; Local public economics; Kunnallistalous; Taxation; Verotus; Effectiveness of public services; Julkisten palvelujen vaikuttavuus; D620 - Externalities; R210 - Urban; Rural; and Regional Economics: Housing Demand (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-geo, nep-pbe, nep-soc and nep-ure
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Citations: View citations in EconPapers (2)

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https://www.doria.fi/handle/10024/148775

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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