Do Urban Neighborhoods Benefit from Homeowners? Evidence from Housing Prices

29 Pages Posted: 17 Dec 2014

See all articles by Mika Kortelainen

Mika Kortelainen

Government of the Republic of Finland - VATT Institute for Economic Research; University of Manchester

Tuukka Saarimaa

Aalto University - School of Business; Aalto University - School of Engineering

Date Written: January 2015

Abstract

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‐story 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.

Keywords: Homeownership, neighborhood externalities, semi‐parametric regression, set identification

JEL Classification: D62, R21, R28

Suggested Citation

Kortelainen, Mika and Saarimaa, Tuukka, Do Urban Neighborhoods Benefit from Homeowners? Evidence from Housing Prices (January 2015). The Scandinavian Journal of Economics, Vol. 117, Issue 1, pp. 28-56, 2015. Available at SSRN: https://ssrn.com/abstract=2539771 or http://dx.doi.org/10.1111/sjoe.12090

Mika Kortelainen (Contact Author)

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

University of Manchester ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Tuukka Saarimaa

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

Aalto University - School of Engineering ( email )

PO BOX 14100
Aalto 00076
Finland

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