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

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

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

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

The economic implications of house price capitalization: a synthesis

In this article I argue that the extent to which fiscal variables are capitalized into house prices has important economic implications. I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader implications of such capitalization. The main insights are: (i) House price capitalization is more pronounced in locations with strict regulatory and geographical supply constraints; (ii) capitalization can – under certain conditions – induce the provision of durable local public goods and club goods; and (iii) capitalization effects – which are habitually ignored by policy makers – have important adverse consequences for a wide range of policies such as intergovernmental aid or the mortgage interest deduction

Does stamp duty stop people moving house?

Posted by Dr Christian Hilber, SERC and LSE People buying a home in the UK have to pay stamp duty on the transaction. Stamp duty-type taxes are one of the oldest forms of taxation – dating back to 1624 – and have long been criticised by economists as being inefficient

The law of unintended consequences: business rate retention and house prices

Most analysis of Monday’s local government finance proposals has focused on the shiny new stuff – retained business rates and Tax Increment Financing (TIF) – and the winners and losers reform might create. That’s not surprising. But it’s also not the whole story. Changes to business rates are also likely to affect local house prices – in ways that are actively unhelpful for Ministers’ housebuilding agenda