Homeownership, Labor Supply, and Neighborhood Quality - CANCELLED

(with Tamar Ramot-Nyska and Noam Zussman) 

Link to Paper

Abstract: Owner-occupiers have greater locational stability than do renters and benefit from appreciation in property value. These factors give homeowners incentives to invest in their property and its surroundings, including the neighborhood’s appearance, amenities, and social capital. This paper provides new evidence on the external neighborhood benefits of homeownership using a natural experiment in Israel that generated large changes in neighborhood homeownership rates while holding fixed the residents and housing stock, two primary sources of bias in traditional estimates of homeownership effects. When public housing tenants are given the opportunity to buy their units, eventual buyers significantly increase their labor supply on both the extensive and intensive margins. And the effects are felt in the neighborhood: evidence indicates that when homeownership rates rise by 10 percentage points due to sales of these public housing units to sitting tenants, prices of neighborhood homes rise by 1.5-2.0%, reflecting an improvement in neighborhood quality. To address endogeneity in tenants’ decisions to buy their homes, we construct an instrumental variable from exogenously set government discounts to the purchase price and find similar results.  We discuss the conditions under which these effects may be interpreted as homeownership effects per se versus privatization effects. Evidence supports the general relevance of our results for policies that increase homeownership among low income populations.