Academic journal article Real Estate Economics

Does Homeownership Affect Child Outcomes?

Academic journal article Real Estate Economics

Does Homeownership Affect Child Outcomes?

Article excerpt

We study the impact of homeowning on the cognitive and behavioral outcomes of children. Using four waves of a comprehensive national panel data set, we control for many social, demographic and economic variables previously found to influence child outcomes. The data are a panel, allowing us to control for unobserved household- and child-specific factors. We use a treatment effects model to address the issue of possible sample selection bias caused by unobserved variables that influence both the parent's choice of whether to own or rent and whether to invest in their children. We find that owning a home compared with renting leads to a 13 to 23% higher quality home environment, greater cognitive ability and fewer child behavior problems. For children living in owned homes, math achievement is up to 9% higher, reading achievement is up to 7% higher, and children's behavioral problems are 1 to 3% lower.

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Although many economic and social factors influence early childhood cognitive and behavioral outcomes, little is known about the independent effect of homeownership on children. Our study examines the effects of homeownership on a child's cognitive and behavioral outcomes. To isolate the impact of homeownership, we control for many economic, demographic and social factors including local community attributes, household and child characteristics. We find that the children of homeowners achieve higher levels of cognition and have fewer behavioral problems.

How might homeownership affect children? We suggest two mechanisms, one being the stronger investment incentive of owners compared with renters, the other being greater geographic stability. The investment incentive should result in a homeowner having a better home environment, and we argue that good home environments positively impact child outcomes. The greater stability of homeowners suggests that homeowners will develop greater social capital in their neighborhood. Also, children will be exposed to a more stable school environment. We again expect a positive impact on child outcomes.

The data set that forms the basis for our analysis is the National Longitudinal Survey of Youth (NLSY), augmented by the NLSY-Child Data. Our sample consists of more than 1,000 children, ages five to eight in 1988, who also were surveyed in 1990, 1992 and 1994. The children's data are matched with extensive social, demographic and economic data on parents. Parental information was first collected in 1979 and has been updated annually.

We use a random effects econometric model to estimate the impact of homeownership on the quality of the home environment and the impact of home environment and homeownership on child outcomes. We recognize that there may be unobserved factors that influence a household's tendency to both own a home and invest in its children. If present, the estimation coefficients will be biased. In our sample, we find evidence that a selection process is present; thus, to prevent bias we use a treatment effects model.

We find substantial positive effects of homeownership on the home environment and we find that increased quality of home environment has a statistically significant and positive effect on increasing child cognition and reducing child behavior problems. Further, we find support for the hypothesis that the longer a parent owns a home, the greater is their children's cognition and the lower are behavior problems.

Background

U.S. governmental policy has consistently encouraged individuals and households to become homeowners. The most widely recognized means of influencing the choice between owning and renting is the tax code. Many studies have documented the positive impact of mortgage deductions and the lack of taxation of homeowners' imputed rental income on the tendency to own a home (Haurin, Hendershott and Ling 1988 and Hendershott and Shilling 1982). …

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