Low-Income Homeownership: Examining the Unexamined Goal

Chapter 16. Building Homes, Reviving Neighborhoods: Spillovers from Subsidized Construction of Owner-Occupied Housing in New York City

Promoting homeownership has always been a central aim of housing policy in the United States. The federal tax code delivers generous tax benefits to homeowners, the Federal Housing Administration (FHA) provides insurance on high loan-to-value mortgages, a variety of other FHA and state programs have offered below-market interest rates, and the Community Reinvestment Act of 1977 provides incentives for financial institutions to make mortgage loans in low- and moderate-income communities. As cities have become more centrally involved in implementing housing policy, local officials have also begun to sponsor a large number of homeownership programs in distressed communities. Although these efforts typically do not reach the poorest households, they are justified in large part by the positive spillovers that many argue will result from the development of new homes and by homeownership itself.1 There is little empirical evidence, however, about the impact of home building and homeown447 Building Homes, Reviving Neighborhoods: Spillovers from Subsidized Construction of Owner-Occupied Housing in New York City ingrid gould ellen, michael h. schill, scott susin, and amy ellen schwartz 16 The authors would like to thank the Fannie Mae Foundation for financial support and Isaac Megbolugbe and Amy Bogdon for their substantive contributions. They would also like to thank Denise DiPasquale, Frank DeGiovanni, and Eric Belsky for comments on an earlier draft, Ioan Voicu for excellent research assistance, and Jerilyn Perine, Richard Roberts, Harold Shultz, and Calvin Parker of the New York City Department of Housing Preservation and Development and Chuck Brass and Sal D’Avola of the New York City Housing Partnership for providing the data necessary to complete this research. This work was first published in the Journal of Housing Research 12 (2): 185–216. 1. Some cities may also support homeownership programs as an attempt to retain the middle class. file06 ch13-16 pp375-478.qxd 7/5/2002 2:26 PM Page 447 ership on local communities. In this chapter, we examine and compare the impact of two of New York City’s major homeownership programs on property values in surrounding communities. Both of these programs, the Nehemiah Plan and the New Homes Program of the New York City Housing Partnership, subsidize the construction of affordable, owner-occupied homes in distressed urban neighborhoods. Spillover Effects of Homeownership and Housing Redevelopment There are several reasons that the Nehemiah Plan and the Partnership New Homes program might be expected to raise the value of surrounding properties. First, both replace blighted properties or land with new structures. Unlike most commodities, housing is fixed in space, and the value of a home is therefore influenced not only by its structural features and quality but also by its surroundings . The appearance of neighboring homes, the level of noise and disorder in a community, and the quality of local public services are all likely to contribute to the value of a particular home. Thus housing investments in blighted areas should, in principle, generate spillover benefits that could be capitalized into the value of surrounding properties. Second, these housing programs may have bolstered the number of homeowners in their communities, which may in itself lead to higher property values if, for example, their greater financial stake leads homeowners to take better care of their homes than renters do.2 Similarly, homeowners may be more involved in local organizations and activities either because of their financial stake or because they tend to stay in their homes for a longer period of time, or for both reasons. Again, these factors may improve the quality of life in a community and raise property values.3 These programs may also affect property values because they lead to a population change in the neighborhood. Because homeowners typically earn higher incomes than renters, the community’s socioeconomic status may increase. In addition, property values may increase as a result of the population growth that occurs as vacant land is transformed into housing. This population growth may in turn lead to new commercial activity and economic growth, making the neighborhood increasingly desirable. Finally, as Galster (1987) explains, exogenous changes to the “physical demographic character of a neighborhood” may change expectations about the future 448 socioeconomic impacts of homeownership 2. Absentee landlords and homeowners have similar financial stakes in the properties they own. But the argument is that because they do not live in the property, absentee landlords are not able to control the day-to-day upkeep in the same way that homeowners can. 3. There is, in fact, little...