Homeownership externalities, Evidence from Rotterdam Ruben Cox+a, Dirk Brounen+, Peter Neuteboom+ +RSM Erasmus University Rotterdam DRAFT PREPARED FOR ERES MILANO 2010 This draft: May 31th 2010 Abstract Does homeownership benefit neighborhoods? We analyze three types of external effects of homeownership in neighborhoods: neighborhood safety, neighborhood satisfaction and percentage of citizens voting in local elections. We address endogeneity between ownership-rates and external effects using instrumental variables and examine non-linear effects. Using a detailed dataset of 75 neighborhoods in Rotterdam over an eight year time-span, we find consistent evidence that homeownership induces positive neighborhood externalities. Ownership-rates and external effects have no linear relationship but are subject to diminishing returns. Depending on the external effect under consideration these returns diminish once ownership-rates reached levels around 45-50 percent. aCorresponding author:
[email protected] ; +31 10 408 1358. Rotterdam School of Management, Erasmus University, Burg. Oudlaan 50, PO 3062 PA Rotterdam, The Netherlands. We thank NHG for financially supporting this project. 1. Introduction To own or not to own? That is the question that puzzled academics and dominated governmental housing policies of many Western countries during the last decades. One example is the passage of the Federal Home Loan Bank Act in 1932 in the U.S. intended to promote homeownership (Megbolugbe and Linneman, 1993). Also other countries adopted ownership stimulating policies such as tax-deductibility of mortgage interest and buyers subsidies in the Netherlands and Belgium. These policies were developed and executed partly with the belief that homeowners provide – as DiPasquale and Glaeser (1999) call them - local amenities.