Tuesday, 11 December 2012

What do homeowners have a stake in?

Today's Census figures showing a fall in home ownership have excited plenty of comment about the struggles of so many people to get on the property ladder. With excellent timing, the IPPR came out with some research yesterday examining some of the knock-on effects of these housing pressures. Jenny Pennington, the author of the research, summarises the argument here. I recommend people read the full report as it has some really good qualitative evidence on the social consequences of high housing costs, such as people having to delay starting relationships or having children. But there's one particular result I'd like to focus on. Jenny writes:
Secure housing also makes a real difference to the way people invest in a particular community. Owning a home increases a person's sense of belonging to a neighbourhood. For example, an individual who has lived in the same home for 20 years without owning it is likely to feel the same sense of neighbourhood belonging as someone who owns their home, but has lived in it for just six years. Young people who did not own their home talked about not really seeing the point of committing to the area in which they lived or getting to know the people they shared a street with.
This conclusion is arrived at through a robust-looking analysis of survey data, and I'm sure it's accurate as far as it goes. I would just caution that it's very hard to control for all the relevant factors here, particularly the crucial one of how long people intend to stay in a neighbourhood. Someone who expects to be moving on in a few years is likely to be less keen to either buy a home (given the transaction costs involved) or get much involved in local community matters. If the average level of 'expected mobility' in the population rose (because more people need to move to find work, for example), then we should probably expect to see both less home ownership and less 'neighbourhood belonging' - but home ownership wouldn't be the causal factor.

That said, I suspect there probably is a positive effect of homeownership on community belonging, even if it is hard to identify empirically. Pure self-interest would suggest that homeowners are likely to be more committed to the improvement of their area, because when you own a home somewhere you are to some extent stuck there (transaction costs again), and the value of your (very large) financial investment will be determined by what does or doesn't happen in its surroundings.

Lest anyone think I'm just being cynical for the sake of it, there is some pretty good evidence that homeowners' attitudes towards community issues are influenced by the expected impacts on house prices. Here's Christian Hilber, writing in the Journal of Urban Economics in 2010:
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.
Translated, what this means is that home owners really do put more effort into building social ties ('social capital investment'), but only really in places where it's harder to build new housing ('more inelastic supply'). One possibility is that this is because in such areas any local improvements as a result of stronger social ties are more likely to result in higher house prices, while in areas with elastic supply rising demand results in more new homes and no effect on prices. It's worth noting that Dr Hilber previously found that in Massachusetts even elderly homeowners without kids tend to vote for (and pay for, through taxes) investment in schools because it increases the value of their home.

Many people might say there's nothing wrong with any of this, and that if home ownership gives people a financial incentive to care more about their neighbourhood then so much the better for home ownership. My concern is that it also seems to give people a financial incentive to oppose new housing supply in their neighbourhood, as new development may reduce the value of their home (either through a supply effect or the amenity impact of extra housing) or, as Dr Hilber suggests, upset the social balance they have helped create. If homeowners are really less likely to be socially virtuous when housing is plentiful then it sounds like a society with high levels of home ownership and strong social ties may also be one with a persistent housing shortage.

And indeed, that's kind of what the basic numbers suggest. Surveys show that a sizeable majority of home owners say they would oppose new homes being built in the local area, while private tenants are basically split and social housing tenants are in favour of new housing. And over the long run, the rate of new housing supply has fallen while the rate of home ownership has risen. The graph below charts one against the other for England as a whole, starting in 1972 and ending in 2011. Throughout most of the 1970s we were building around two new homes for every new household, but over time, the rate of building fell as the rate of home ownership rose. There was obviously a lot of other stuff going on at the time so I'm not categorically claiming a causal relationship, but it's not a particularly positive picture either.

To sum up, I'm not sure home ownership gives people a stake in 'society' so much as it gives them a stake in their local neighbourhood, which is not the same thing, especially if one way to 'help your neighbourhood' is to prevent new homes being built there. That may make sense from a household's perspective (in fact for many people it certainly does) but that doesn't mean it makes sense for society as a whole.

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