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I. Introduction
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 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, such
as homeownership counseling, outreach, and efforts to subsidize production.
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 from homeownership itself. 1 To date, there is little
empirical evidence about the impact of homeownership efforts on local communities. In
this paper, we investigate 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 development of affordable, owner-occupied homes in distressed urban
neighborhoods.
Spillover Effects of Homeownership and Housing Redevelopment
There are several reasons that the Nehemiah and Partnership New Homes programs
might be expected to raise the value of surrounding properties. First, both programs
replace blighted or vacant properties with new homes. 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
should all contribute to the value of a particular home. Thus, housing investments in
blighted areas should theoretically generate spillover benefits for the local community,
benefits that should be capitalized into the value of surrounding properties.
Second, beyond adding new structures where there was previously blight, these
1 Some cities may also support homeownership programs as an attempt to retain the middle-class.
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