Homeownership, Labor Supply, and Neighborhood Quality

This paper provides new evidence on the external neighborhood benefits of homeownership among low-income populations. A natural experiment in Israel generated large changes in neighborhood homeownership rates while holding fixed the residents and housing stock, two primary sources of bias in traditional estimates of homeownership effects. When public housing tenants are given the opportunity to buy their units, eventual buyers significantly increase their labor supply on both the extensive and intensive margins. The effects are felt in the neighborhood: when homeownership rates rise by 10 percentage points due to sales of these public housing units to sitting tenants, prices of neighborhood homes rise by 1.5-2%, reflecting an improvement in neighborhood quality. To address endogeneity in tenants' decisions to buy their homes, we use intertemporal and cross-sectional variation in government-set purchase price discounts, and we find similar results. We discuss the conditions under which these effects may be interpreted as homeownership effects, per se, versus privatization effects. Evidence supports the general relevance of the results for policies that increase homeownership among low income populations using financial incentives