1 INTRODUCTION

Recent studies suggest that homeownership may produce significant social costs as well as social benefits. 1 In terms of social costs, it is argued that the lower mobility of homeowners may directly or indirectly increase unemployment rates (for recent contributions, see Blanchflower and Oswald, 2013, and Broulíková, Huber, Montag, and Sunega, 2018). With respect to the social benefits, a number studies document the positive association of homeownership with political participation and social capital formation (DiPasquale and Glaeser 1999; Hilber 2010), life satisfaction (Rossi and Weber 1996; Zumbro 2014), self‐assessed health (Aizawa and Helble 2015; Rossi and Weber 1996), and children’s educational outcomes (Aaronson 2000; Green and White 1997; Haurin, Parcel, and Haurin 2002). The net effect of homeownership, however, remains ambiguous. This paper aims to contribute to this debate by further investigating the effects of homeownership on political participation and social capital.

In theory, homeowners are less mobile than renters. Thus they can expect a longer stream of benefits from their neighborhood quality and local social capital. Lower mobility also means that their social capital may be more valuable at any point in time, for instance during job search activity. Homeowners are also more likely to financially profit from investments into the local community than renters through higher housing prices (DiPasquale and Glaeser 1999). In fact, any of the advantages and disadvantages of a jurisdiction (e.g. local government indebtedness) should directly capitalize into property prices (Eichenberger and Stadelmann 2010; Stadelmann and Eichenberger 2014). These factors give homeowners incentives to be politically active and invest into local social capital, i.e. to be “better citizens”.

In general, the literature on the effects of homeownership is heavily focused on the mature market economies, particularly the United States. Broulíková et al. (2018), using the same data and similar identification strategy as we do, have previously looked at the impact of homeownership on labor market outcomes, and thus on the potential social costs of homeownership in these countries. They find no evidence of higher unemployment risks relative to renters. This paper asks whether homeowners are “better citizens” in the context of post‐communist countries and it is the first to study the potential social benefits of homeownership in this region.

Looking at post‐communist countries, and contrasting them with Western Europe, is of interest because these countries have been shown to have lower levels, as well as a different structure, of social capital than most developed market economies (Boenisch and Schneider 2013; Fidrmuc and Gërxhani 2008; Raiser, Haerpfer, Nowotny, and Wallace 2002) and because this social capital deficiency has been mentioned as a potential cause for poor economic performance and high levels of corruption in post‐communist countries (e.g. Paldam and Svendsen 2000). Understanding the degree to which the social benefits of homeownership found for developed market economies also apply to post‐communist countries can therefore provide insights as to whether subsidizing homeownership and continued privatization of public housing can help reconstruct their social capital. Apart from the wider literature on the social benefits of homeownership cited above, the paper thus contributes to the literature on social capital in post‐communist countries and adds to the research on political attitudes in this region (Okulicz‐Kozarin 2014).

Last but not least, we add to the discussion on the proper empirical identification of the benefits of homeownership, which is an important challenge for all research in this area, due to the apparent endogeneity of homeownership. This arises because homeownership is not randomly assigned as it is quite plausible that households who have a desire to settle and invest into a locality are more likely to become homeowners. Previous contributions have used a wide range of instruments to establish a causal link: DiPascale and Glaeser (1999) use state homeownership rates by race and income quintile (see also Aaronson 2000), while other authors have used the relative user cost of owner‐occupied housing (e.g. Greene and White, 1997, Haurin et al. 2002) or regional price‐to‐rent ratios (Engelhardt et al. 2010). However, recent quasi‐experimental evidence by Engelhardt, Eriksen, Gale, and Mills (2010) casts some doubt on the causality behind these findings.

In this paper, we follow the identification strategy recently developed by Broulíková et al. (2018) who argue that privatization in the post‐communist countries created an exogenous assignment of homeownership status that can be used to study its causal effects. 2 This paper is thus the first that uses housing privatization to identify the effects of homeownership on political participation and social capital. We also report results for more traditional approach where homeownership is instrumented by regional homeownership rates (DiPascale and Glaeser 1999). This allows us to gauge the sensitivity of our results to alternative identification approaches.

Our main findings can be summarized as follows. With regard to political participation, we find that homeownership is positively related to a higher frequency of voting in both local‐level and national elections. This result holds for all post‐communist countries and seven Western European countries in our data. With regard to social capital, we find that in post‐communist countries, homeownership is positively related to social trust. This finding does not hold for the Western European countries. However, homeowners in both geographic regions interact with their family members more often than renters. Consistent with the results reported by DiPasquale and Glaeser (1999) for the United States, we also find a positive association between homeownership and participation in voluntary organizations in the Western European countries. This result does not extend to post‐communist countries. Finally, we study the heterogeneity in the effects of homeownership across post‐communist geographic regions and countries. The effects of homeownership on participation in elections are highly consistent. However, the results for other outcomes exhibit a varying degree of heterogeneity, both at the geographic‐region level and at the country level.