Real Estate Ownership with Favors in Transition Countries

This paper employs an extensive household survey data set covering a wide range of transition countries to empirically characterize real estate ownership of households. The types of dwellings, housing tenure (own vs rent), second home and land ownership, and mortgage prevalence by household respondents are empirically analyzed. Theoretical motivation for the empirical analysis recognizes both formal payments for real estate and/or mortgages, and informal methods of acquisition or the use of a favor (blat) as is common in many transition economies. To explain the wide variation in real estate ownership and mortgage patterns across countries, empirical models of both ownership/renting and mortgage prevalence are estimated. using limited dependent variable methods. Individual characteristics, country economic conditions, and regional controls are used in the models, all of which are found to be associated. with ownership. One unique aspect of real estate markets in these countries is evident in the estimations–membership in the Communist Party or a family history of membership, has a significant positive effect on the likelihood of owning a second home or a parcel of land. An instrumental variable (IV) approach is employed in estimation of second home and land ownership, where Party membership is endogenous. Similarly, in estimation of home loan prevalence, trust in banks and the financial system is modeled as endogenous with an IV approach. Data used in this study are from the European Bank for Reconstruction and Development (EBRD) Life in Transition Survey, LITS III, for the year 2016 covering 29 transition countries plus Kosovo