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Do homeowners benefit urban neighborhoods? evidence from housing prices

Kortelainen, Mika and Saarimaa, Tuukka (2012) Do homeowners benefit urban neighborhoods? evidence from housing prices. SERC Discussion Papers (SERCDP0110). Spatial Economics Research Centre (SERC), London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/SERC/publication...
Additional Information: © 2012 The Authors
Divisions: Geography & Environment
Spatial Economics Research Centre
Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
Sets: Departments > Geography and Environment
Research centres and groups > Spatial Economics Research Centre
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 16 Jul 2014 13:30
Last Modified: 21 Feb 2019 00:09
Funders: Economic and Social Research Council, Department for Business, Innovation & Skills (BIS), Welsh Assembly Government
URI: http://eprints.lse.ac.uk/id/eprint/57923

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