Nonprofit Housing and Neighborhood Spillovers

Ellen, I.G. & Voicu, I.
Journal of Policy Analysis and Management, Vol 25, No. 1, pp 31-52.

Nonprofit organizations play a critical role in U.S. housing policy, a role typically justified by the claim that their housing investments produce significant neighborhood spillover benefits. However, little work has actually been done to measure these neighborhood impacts. This paper compares the neighborhood spillover effects of city-supported rehabilitation of rental housing undertaken by nonprofit and for-profit developers, using data from New York City. To measure these benefits, we use increases in neighboring property values, estimated from a difference-in-difference specification of a hedonic regression model. We study the impacts of about 43,000 units of city-supported housing completed during the 1980s and 1990s, and our sample of property transactions includes nearly 300,000 individual sales. We find that both nonprofit and for-profit projects generate significant, positive spillover effects. This finding in itself is significant, given the widespread skepticism about the impact of subsidized housing on neighborhoods. We also find some differences across sectors. First, the impact of nonprofit housing remains stable over time, whereas the effect of for-profit housing declines with time. Second, while large for-profit and nonprofit developments deliver similar benefits, in the case of small projects, for-profit developments generate greater impacts than their nonprofit counterparts. These differences are consistent with theoretical predictions. In particular, in the presence of information asymmetries with respect to housing quality, the nondistribution constraint should lead nonprofits to deliver more durable housing, by softening incentives to shirk on quality and maintenance. Meanwhile, the fact that scale makes a difference to nonprofit impacts may reflect the capacity problems often faced by smaller nonprofits.

Wagner Faculty