Local Social Forces, Household Finance, and Real Estate

I explore the relationships between households’ real estate decisions and their local urban and political environments. In the first chapter, I investigate whether household mortgage choices are influenced by social interaction. I build a database using household mortgage data and precisely geolocated real estate data and ask whether households are socially influenced by those with whom they are more likely to interact, specifically, their neighbors. I find that households are more likely to choose an adjustable rate mortgage (refinance) as the share of their block-peers with an adjustable rate mortgage (who have recently refinanced) increases. Consistent with a social interactions mechanism, people new to their census block show no effects from social influence while those who have had time to socially interact with their neighbors do. The existence of neighbor social influence has important implications for the adoptions of risky lending technologies and subsequent foreclosure contagion.

In the second chapter, I ask how household finance affects the political process? I focus on one channel of influence and ask if financially distressed homeowners are more or less likely to participate in elections. I create a novel dataset that matches voters registered in North Carolina to their mortgage decisions., and then use a difference-in-differences design that compares initially highly leveraged homeowners to their equity rich neighbors and exploits variation in house price declines during the recession. I find that, for highly leveraged homeowners, a ten percent decline in local house prices decreases voter participation by two percentage points. Furthermore, the effects of financial distress are particularly severe for homeowners that live more than one mile from their polling place, consistent with a resource constraints channel. Back of the envelope calculations suggest that mortgage distress can explain approximately 500,000 abstentions in the 2012 general election.

In the final chapter, I ask how political identity, which has increased in salience and importance in recent decades, affects households’ real estate decisions. Consistent with the trend that those affiliated with one political party are increasingly hostile towards members of the opposite party, I find that changing cultural tides at the census block level, measured using the political affiliations of the block’s residents, have dramatic effects on households’ moving and homebuying decisions. I find that households in the political minority on their census block are more likely to move away than their in-group neighbors. And, when moving, sell their homes for less. Furthermore, they largely move locally to blocks where their political views are more common. My results help explain the increasing polarization of the electorate and, by demonstrating that households pay a large cost to live near co-partisans, provide novel evidence on how households make important financial decisions.