Threshold Effects of Neighborhood Homeownership Rates and the Impacts on Property Values and Rental Prices

Author: William Ewell

Dissertation School: University of North Carolina at Chapel Hill

Abstract:

The goal of this research proposal is to examine the threshold effects of neighborhood homeownership rates and their impacts on owner-occupied housing values and rental prices. A handful of studies have examined the impact of homeownership rates on neighborhood housing values and rental prices; however, studies analyzing neighborhood homeownership rate thresholds are largely absent. The empirical literature indicates that targeted homeownership programs, particularly in low-income neighborhoods, provide incentives and feedback effects that increase property values and length of tenure, resulting in higher levels of neighborhood stability. Alternatively, a dramatic increase in house values and rental prices may result in gentrification and exacerbate low-income housing problems. If discrete thresholds could be defined for improving neighborhood quality without a substantial increase in rental prices, then policymakers could target homeownership programs in those communities where neighborhood stability could be achieved without significant resident displacement.

This research will build on two distinct academic literatures, including studies of homeownership rate impacts on neighborhood effects and the non-linear process of neighborhood change called threshold effects. First, a hedonic estimation of house and rental prices will be calculated. The hedonic estimation uses a constant quality measure of housing stock that will control for the propensity for house prices to appreciate over time. Second, a tenure choice equation is estimated for both rental price and ownership price. The model employs both a hedonic price equation and a tenure choice equation because households self-select into ownership and this unobserved selection process can result in estimation bias of housing prices. Finally, a regression analysis with a spline specification will be employed to test for neighborhood threshold effects. This statistical method allows the regression line to model a series of linear segments with distinct slopes and levels.

Policymakers, planners, and local housing advocates consider homeownership programs to be one of the primary methods of neighborhood revitalization due to homeowners' increased investments in housing maintenance, demand for improved public services, and higher level social participation. This study will provide evidence to the question: As homeownership rates increase or decline in a neighborhood, are there certain critical thresholds that cause significant non-linear impacts on housing values and rental values. This empirical analysis will have practical benefits for policymakers in determining the direction of U.S. national housing policy and for state and local neighborhood planners to direct neighborhood revitalization strategies.

Back to Search Result of EDSRG Dissertations