Is Social Housing Affordable?

Supply subsidies to owners of rental housing construction are typically aimed at increasing the overall size of the housing stock or at guaranteeing affordable housing for low-income households. This paper studies whether and how much the tenants of social housing units benefit from this subsidy. We use on free market rental units and subsidized rental units owned by the city of Helsinki. Our data contain detailed information about the characteristics of the units, including their location. We employ hedonic regression methods to predict rents for the subsidized units and use the results to calculate the subsidy the tenants obtain when occupying a subsidized unit instead of an otherwise similar free market rental unit. We find that on average the monthly subsidy per unit is 246 Euros, whereas the average monthly subsidy per unit?s square meters is 3.88 Euros. We also find that there is substantial heterogeneity in the amount of subsidy that different subsidized units receive

Politics in coalition formation of local governments

We analyze empirically the coalition formation of local governments using a novel reduced form econometric procedure that allows for multi-partner mergers. Using Finnish municipal merger data where mergers were decided independently at the local level, we find that merger decisions are largely in line with voter preferences. Most importantly, mergers are clearly less likely when the distance of the median voter to the coalition centre is large. However, councillors seem also to prefer mergers where post-merger political competition is lower which indicates a concern for re-election. Interestingly, municipalities do not seem to be seeking economies of scale through merging. This is possibly due to existing cooperation in service production which we find to be a strong predictor of merging

Do Homeowners Benefit the Neighborhood? Evidence from Semiparametric Hedonic Regressions

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 well documented in the economics literature. The main argument in favor of subsidizing owner-occupied housing is that it creates positive externalities or social benefits that offset these adverse effects. This paper tests whether homeowners create positive externalities to their immediate neighborhood that capitalize into house prices. Using semiparametric hedonic regressions with instrumental variables we find no evidence of positive externalities from neighborhood homeownership rate. This result is robust to relaxing the identification assumptions of our instrument using the set identification method proposed by Nevo and Rosen (2012, Review of Economics and Statistics, forthcoming). Our results suggest that the adverse efficiency effects of lenient tax treatment of owner-occupied housing are not offset by positive externalities

Local representation and strategic voting: evidence from electoral boundary reforms

We use Finnish local election voting data to analyze whether voters value local representation and act strategically to guarantee it. To identify such preferences and behavior, we exploit municipal mergers as natural experiments, which increase the number of candidates and parties available to voters and intensify political competition. Using difference-in-differences strategy, we find that voters in merged municipalities start to concentrate their votes to local candidates despite the larger choice set, whereas the vote distributions in the municipalities that did not merge remain the same. Moreover, the concentration effect is clearly larger in municipalities that are less likely to gain local representation in the post-merger councils. We also find that the effect increases both as the geographical distance and income heterogeneity between merging municipalities increases. We interpret these results as evidence of both preferences for local representation and strategic voting

Effects of Real Estate Transfer Taxes : Evidence from a Natural Experiment

We study the effect of the transfer tax on housing transactions and household mobility in Finland using housing transaction data and micro data on the entire population in 2005–2015. In March 2013, the transfer tax rate was increased for housing co-operatives and the tax base was broadened to include housing co-operative loans, but the tax treatment of directly owned single-family houses remained unchanged. The reform allows a differences-in-differences design to be used. We find that the tax reform was anticipated in the housing market. Some transactions that would have taken place after the reform were brought forward to late 2012 and early 2013 so as to avoid the tax increase. The anticipation effects were especially pronounced for new construction and for resales with relatively large housing co-operative loans. We also find that the tax increase on co-ops had a negative effect on the transaction volume of housing units in co-ops in the longer run, and may have influenced transactions of single-family houses. Furthermore, the transfer tax reduces mobility, both within and across labor market areas. Our results suggest that the tax creates sizable welfare losses due to increased mismatch of housing units and households and workers and jobs.This publication is part of the implementation of the Government Plan for Analysis, Assessment and Research for 2017 (tietokayttoon.fi/en). The content is the responsibility of the producers of the information and does not necessarily represent the view of the Government

The Incidence of Housing Allowances: Quasi-Experimental Evidence

This paper studies the effects of housing allowances on rents. Our research design is based on a reform that made the allowance more generous for small housing units as a quasi-experimental setting. We find that large increases in housing allowances for small housing units have little or no effect on their rents relative to larger units. Thus, the incidence of the reform is largely on allowance recipients and not on their landlords. Consistent with very moderate rent effects, we do not find evidence of recipient households responding to the increased incentive to choose small units. A possible explanation is that optimization frictions and short expected allowance spell duration limited demand responses to the reform.nonPeerReviewe