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«reNtal HousiNg Policy iN tHe uNited states Volume 13, Number 2 • 2011 U.S. Department of Housing and Urban Development | Office of Policy ...»

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metropolitan areas suggest that subsidizing single-family detached dwellings not only encourages people to live in single-family dwellings within metropolitan areas, but it also encourages people to live in metropolitan areas that are more oriented toward single-family detached dwellings.

Does the connection between homeownership and structure type reflect the maintenance- and investment-related issues discussed in the previous section? Previous work has already shown that rental units depreciate more quickly than owner-occupied units (Shilling, Sirmans, and Dombrow, 1991). Exhibit 3 reminds us of the difference in quality levels between owner-occupied and rental units. Using the American Housing Survey, I separated properties into four groups, by ownership type and structure type. Our two structure type classifications are single-family detached structures and structures with five or more units.

Across many types of problems, rental units had significantly more examples of maintenance problems. For example, almost 2.5 percent of renter-occupied units had open cracks or holes, but the share of owner-occupied units with these problems was less than 1.3 percent. Nearly 3.5 percent of renter-occupied heads of household described their housing as “moderately inadequate” or “severely inadequate,” but only 1 percent of owner-occupied heads of household described their housing this way.

These differences also hold within structure types. For example, 2.8 percent of renter-occupied single-family detached dwellings had open cracks or holes, as opposed to 1.2 percent of owneroccupied single-family detached dwellings. More than 2 percent of renter-occupied multiunit dwellings had this problem, compared with less than 1 percent of owner-occupied multiunit dwellings. In rented single-family homes and multifamily homes, 1.25 and 1.04 percent, respectively, reported broken plaster and peeling paint, but in owner-occupied homes the corresponding numbers were 0.49 and 0.35 percent.

For the data in the second to last column, I tested whether the gap in problems between owneroccupied and rental units is statistically larger for single-family detached dwellings than for multiunit dwellings. I reported the t-statistic for the interaction between owner-occupied units and singlefamily detached structures. In some cases, I found that this is the case. For example, the reduction in large, open cracks that is associated with owner-occupied housing is larger in single-family detached units.

Some of this difference may reflect differences in the demographics of the residents. In the last column, I show the t-statistic on the interaction between structure type and ownership when I have also controlled household income, education, race, and age. In this case, I found somewhat different results that are still generally compatible with the view that ownership reduces maintenance problems more in single-family detached dwellings.

One interpretation of these mixed results is that, although renting multifamily dwellings still leads to fewer maintenance problems, it also leads to less time and effort spent in coordinating responses to those problems, as the model suggests. Because I am unable to measure these costs, this statement must remain speculation.

Overall, however, the connection between structure type and ownership type is clear. Moreover, some evidence suggests that this link is related to a core advantage that ownership provides in

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addressing the incentive problems involved in maintaining single-family detached houses. The implication of this advantage for policy is that subsidizing ownership implicitly means subsidizing single-family detached housing.

Structure Type, Ownership, Cities, and Density Because of the link between homeownership and structure type, one consequence of the home mortgage interest deduction, which would result from any pro-homeownership policy, is that people move away from rental housing, which is far more likely to be in larger buildings that are closer to city centers. The link between structure type and ownership also explains why renting is more likely in urban cores and ownership is more likely outside of those areas. High land values in urban centers make it more attractive to build upwards, which, in turn, makes renting more attractive.

The link between residence in central cities and renting is fairly universal. According to the 2006– 2008 American Community Survey, 76 percent of Manhattan residents rent but 64 percent of the residents in suburban Westchester County own their own homes. In Boston, 62 percent of residents rent, but 65 percent of residents in suburban Middlesex County own. In Chicago, 51 percent of residents rent, but 62 percent of the residents in Cook County own. This pattern is weaker but still present in the newer areas of the Sunbelt: in Los Angeles 61 percent of city residents rent, but 62 percent in Orange County own. In Atlanta, 49 percent of city residents rent, but 59 percent of Clinton County residents own. The connection between central city location and homeownership is sufficiently strong that encouraging homeownership is implicitly encouraging deurbanization.

Across metropolitan areas, little correlation exists between density and owning among the least dense areas. In these places, ownership is enormously common and little variation is evident in the share of single-family detached dwellings, which tends to be quite high. Among the dense 50 percent of metropolitan areas, the correlation among area density, renting, and share of the population that lives in single-family detached dwellings is much stronger. In this most dense 50 percent of metropolitan areas, the correlation between the logarithm of population density in 2000 and the share of units that are rented is 38 percent and the correlation between that density measure and the share of units that are single-family detached is 55 percent.

These correlations and the significant variation in areas across space suggest that subsidizing homeownership is implicitly subsidizing people to move away from city centers and to move toward lower density metropolitan areas. These effects are likely to increase pollution and congestion, at least within areas, and to lead people to live in less economically productive areas. I explore those effects next.

Structure Type, Ownership, Energy Use, and Congestion One reason to be concerned about a large federal program that encourages people to live in singlefamily detached houses is that such houses are typically farther away from urban centers. The distance from the city center is associated with more driving, which can create externalities both through emissions and through traffic. For example, using the National Household Travel Survey, Glaeser and Kahn (2010) found that, when a household’s distance to the central business district doubles, the household’s annual gasoline usage increases by 44 gallons, even holding household 20 Rental Housing Policy in the United States Rethinking the Federal Bias Toward Homeownership income and neighborhood density constant. A strong empirical link also exists between the density of an area and per-household fuel consumption (Glaeser and Kahn, 2010). Using the National Household Travel Survey, I estimated that, as density levels drop by 50 percent, households use an average of 81 additional gallons per year, holding household income and distance to the city center constant. Encouraging an urban exodus increases carbon emissions.

The same logic holds true across metropolitan areas. Glaeser and Kahn (2010) found that gasoline usage increased with metropolitan decentralization and decreased with metropolitan population density. By encouraging people to move to less centralized, less dense areas, promoting homeownership increases driving and energy use.

Exhibit 4 shows results on commuting by car, structure type, and homeownership using the 2000 Census. The table reports regressions, in which I control for individual income and age. I found that homeowners are 11 percent more likely to commute by car than are renters. In the second regression, I documented the strong connection between structure type and car commuting. The third regression shows that more than one-half of the connection between homeownership and car commuting reflects the connection between ownership and structure type.

Regressions (4)–(6) control for metropolitan area fixed effects. The effects get smaller but remain significant. These regressions suggest that part of the effect of ownership subsidies works by pushing people toward metropolitan areas that are more car friendly.

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Driving longer distances and owning a car are also associated with negative externalities associated with traffic. Living in multifamily dwellings in the urban center ensures far less traffic on highways than does driving into the city center from single-family detached dwellings in the suburbs. By subsidizing a move away from larger multifamily units, the home mortgage interest deduction is implicitly adding to America’s traffic problem. In this case, subsidizing low-density living is more likely to be a problem within metropolitan areas than across metropolitan areas, because traffic problems are actually less severe in lower density areas.

Subsidizing single-family dwellings also means increasing energy use, because such dwellings are typically larger and use more energy for both home heating and electricity. Per-unit electricity usage is 36 percent higher in single-family detached dwellings than in apartment buildings with five or more units. Natural gas usage is 45 percent higher.5 These results do not control for household size or income, but Glaeser and Kahn (2010) did control for these factors and still found significantly lower household energy use for households that live in urban cores.

The policy implication of this energy finding is that living in single-family detached dwellings creates an externality because of energy use and traffic congestion. The best intervention would be to tax energy use and traffic at its social cost. As long as America lacks such taxes, however, subsidizing single-family detached dwellings only increases driving and home energy use. This increase in driving and home energy use provides a reason to rethink our subsidizing of homeownership, which implicitly subsidizes single-family detached dwellings.

The Economic Consequences of Promoting Single-Family Dwellings Another potential cost of subsidizing single-family detached housing is that it will distort location decisions across metropolitan areas in a way that reduces aggregate productivity. Across metropolitan areas, density is strongly correlated with incomes and productivity (Ciccone and Hall, 1996). Glaeser and Gottlieb (2008) found that, on average, as density doubles, productivity rises by 3 percent, holding individual characteristics constant. I found the same effect for population size, when both population and density are included in the regression. A long and distinguished urban literature focuses on this fact and attempts to understand why productivity rises in dense agglomerations.

Across metropolitan areas, there is a -.32 correlation between the share of the housing stock that is single-family detached and median income in the 2000 Census. An even larger -.42 correlation occurs between the share of the population that lives in single-family detached homes and the logarithm of per-capita gross metropolitan product. Similarly, a positive correlation exists between both of these economic productivity variables and the share of the population that rents in the metropolitan area. Because subsidizing homeownership creates incentives to move to metropolitan areas that specialize in single-family detached homes, these incentives may be pushing Americans out of the denser, more productive metropolitan areas.

The income tax creates an externality associated with earning more. When workers earn higher wages because they live in a more productive area, others experience some of the benefit from their http://www.eia.doe.gov/emeu/recs/recs2005/c&e/spaceheating/pdf/allTables1-13.pdf.

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earnings because of the higher taxes that those workers pay. At the city level, this externality means that too few people move into high-earnings areas, as emphasized by Albouy (2009). Subsidizing homeownership only makes this worse.

The Social Consequences of Subsidizing Single-Unit Dwellings Social issues may be associated with incentivizing Americans to leave denser environments. If proximity breeds empathy, as Luttmer’s work (2001) shows that support for redistribution rises among people who live near poorer people of the same race, then distance may reduce that empathy.

Because poorer people tend to live disproportionately in cities (Glaeser, Kahn, and Rappaport, 2008), bribing wealthier people to leave higher density apartments is increasing the physical, and possibly also the social, distance between rich and poor.

In general, we believe that homeownership leads to a greater investment in social capital, as suggested by DiPasquale and Glaeser (1999). But Glaeser and Gottlieb (2006) also found that certain social activities, such as writing to a newspaper and attending a place of worship, are higher in dense areas. By encouraging people to leave dense areas, the home mortgage interest deduction is implicitly discouraging those social investments. As suggested by the model, the pure ownership effect of the deduction runs up against the fact that the costs of social interaction may be higher at longer distances, and that should make us more cautious about thinking that the deduction always promotes better citizenship.

One does not need to accept these speculative arguments to conclude that the home mortgage interest deduction needs to be rethought, in part, because of its connection with structure type. No one has convincingly shown that apartment living creates negative externalities, and it is certainly clear that in the area of energy use, living in large single-family homes leads to more carbon emissions. In the absence of compelling evidence for negative externalities, the natural stance of the economist is presumably to favor a level playing field between apartments and homes. The current policy is decidedly not a level playing field.

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