New Housing Supply and the Dilution of Social Capital

This paper examines the role of local housing supply conditions for social capital investment. Using an instrumental variables approach and data from the Social Capital Community Benchmark Survey, it is documented that the positive link between homeownership and individual social capital investment is largely confined to more built-up neighborhoods (with more inelastic supply of new housing). The empirical findings provide support for the proposition that in these localities house price capitalization provides additional incentives for homeowners to invest in social capital. The findings are also largely consistent with the proposition that built-up neighborhoods provide protection from inflows of newcomers that could upset a mutually beneficial equilibrium involving reciprocal cooperation. However, the results do not appear to be driven by selection based on inherent differences in social aptitudes or by Tiebout sorting.House price capitalization; social capital; homeownership; land and housing supply; reciprocal cooperation

New Housing Supply and the Dilution of Social Capital

This paper examines the role of local housing market conditions for social capital accumulation and neighborhood club good provision. A model of individual investment decisions predicts that in a setting with high property transaction costs (i) homeowners are more likely to invest in social capital than renters and (ii) the positive link between homeownership and social capital is stronger in more built-up neighborhoods with inelastic supply of new housing. In these neighborhoods homeowners are largely protected from inflows of newcomers that would dilute the net benefit from social capital in the longer run. Empirical evidence from the Social Capital Community Benchmark Survey confirms the model predictions. Instrumental variable estimates suggest that the effects are causal.House price capitalization; social capital; homeownership; land and housing supply; neighborhood club goods

Owners of developed land versus owners of undeveloped land: why land use is more constrained in the Bay Area than in Pittsburgh

We model residential land use constraints as the outcome of a political economy game between owners of developed and owners of undeveloped land. Land use constraints are interpreted as shadow taxes that increase the land rent of already developed plots and reduce the amount of new housing developments. In general equilibrium, locations with nicer amenities are more developed and, as a consequence, more regulated. We test our model predictions by geographically matching amenity, land use, and historical Census data to metropolitan area level survey data on regulatory restrictiveness. Following the predictions of the model, we use amenities as instrumental variables and demonstrate that metropolitan areas with better amenities are more developed and more tightly regulated than other areas. Consistent with theory, metropolitan areas that are more regulated also grow more slowly

Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge

Office space in Britain is the most expensive in the world and regulatory constraints are the obvious explanation. We estimate the ‘regulatory tax’ for 14 British office locations from 1961 to 2005. These are orders of magnitude greater than estimates for Manhattan condominiums or office space in continental Europe. Exploiting the panel data, we provide strong support for our hypothesis that the regulatory tax varies according to whether an area is controlled by business interests or residents. Our results imply that the cost of the 1990 change converting commercial property taxes from a local to a national basis – transparently removing any fiscal incentive to permit local development – exceeded any plausible rise in local property taxes.Land use regulation; regulatory costs; business taxation; office markets

Explaining the Black-White Homeownership Gap: The Role of Own Wealth, Parental Externalities and Locational Preferences

African Americans in the United States are considerably less likely to own their homes compared to Whites. Differences in household income and other socio-economic and demographic characteristics can only partially explain this gap and previous studies suggest that the ‘unexplained’ gap has increased over time. In this paper we use the Panel Study of Income Dynamics (PSID) intergenerational data, which provides information on household wealth, parental characteristics and macro-location choice. We find that African-American households are 6.5 percent less likely to own if only traditional explanatory variables are controlled for. However, the black-white homeownership gap disappears if differences in own and parental wealth and in the preferred macro-location type are accounted for.Homeownership; housing tenure choice; location choice; wealth effects; intergenerational effects

Evaluating the effects of planning policies on the retail sector: or do town centre first policies deliver the goods?

Few studies conceive of land as a productive factor but British land use policies may lower total factor productivity (TFP) in the retailing industry by (i) restricting the total availability of land for retail, thereby increasing space costs (ii) directly limiting store size and (iii) concentrating retail development on specific central locations. We use unique store-specific data to estimate the impact of space on retail productivity and the specific effects of planning restrictiveness and micromanagement of store locations. We use the quasi natural experiment generated by the variation in planning policies between England, Wales, Scotland and Northern Ireland to isolate the impact of town centre first policies. We find that TFP rises with store size and that planning policy directly reduces productivity both by reducing store sizes and forcing retail onto less productive sites. Our results, while they strictly only apply to the supermarket group whose data we analyse, are likely to be representative of supermarkets in general and suggest that since the late 1980s planning policies have imposed a loss of TFP of at least 20%

On the Origins of Land Use Regulations: Theory and Evidence from US Metro Areas

We model residential land use constraints as the outcome of a political economy game between owners of developed and owners of undeveloped land. Land use constraints benefit the former group (via increasing property prices) but hurt the latter (via increasing development costs). More desirable locations are more developed and, as a consequence of political economy forces, more regulated. Using an IV approach that directly follows from our model we find strong and robust support for our predictions. The data provide weak or no support for alternative hypotheses whereby regulations reflect the wishes of the majority of households or efficiency motives.Land use regulations, zoning, land ownership, housing supply

Why do households without children support local public schools? linking house price capitalization to school spending

While residents receive similar benefits from many local public expenditures, only about one-third of all households have children in the public schools. In this paper the authors argue that capitalization of school spending into house prices can encourage residents to support spending on schools, even if the residents themselves will never have children in the schools. To examine this hypothesis, the authors take advantage of differences across communities in the extent of house price capitalization based on the availability of land or population density. They show that fiscal variables and amenities are capitalized to a much greater extent in Massachusetts cities and towns with little available land and that these localities also spend more on schools. Next, the authors use data from school districts in 49 states to show that per pupil spending is positively related to population density, a proxy for the availability of land. Consistent with a model tying house price capitalization to school spending, the authors show that the positive correlation between density and spending persists only in locations with high homeownership rates. Communities with a higher percentage of residents above 65 years old have increased school expenditures only in places with high population densities, and this correlation grows for the percentage of elderly above 75 or 85 years old who have a shorter expected duration in their house. The positive relationship between percentage elderly and school spending is confined to central cities and suburbs of large metropolitan areas and does not exist in places where land for new construction may be easier to obtain. These results support models in which house price capitalization encourages more efficient provision of public services and provide an explanation for why some elderly residents might support local spending on schools.Education

Why Do Households Without Children Support Local Public Schools?

While residents receive similar benefits from many local government programs, only about one-third of all households have children in public schools. We argue that capitalization of school spending into house prices can encourage residents to support spending on schools, even if the residents themselves will never have children in schools. We identify a proxy for the extent of capitalization—the supply of land available for new development—and show that in response to a plausibly exogenous spending shock in Massachusetts, towns with little undeveloped land have larger changes in house prices, but smaller changes in quantity (construction). Towns with little available land also spend more on schools. We extend these results using data from school districts in 46 states, showing that per pupil spending is positively related to the percentage of developed land. This positive correlation persists only in districts where the median resident is a homeowner and is stronger in districts with more elderly residents who do not use school services and have a shorter expected duration in their home. These findings support models in which house price capitalization encourages more efficient provision of public services and may explain why some elderly residents support school spending.

Help to buy

Posted by Dr Christian Hilber, SERC and LSE I recently participated in a public debate organized by the Strategic Society Centre. The topic of the debate was the government’s Help to Buy scheme. The central question: Who will benefit from the scheme? My short answer: It is almost certainly not the young first-time buyers who are the supposed main beneficiaries of the scheme