Individual Payoffs and the Effect of Homeownership on Social Capital Investment

Are all social capital investments equal in the eyes of homeowners and renters? Presumably, social capital investments that lead to increases in home values provide stronger incentives for homeowners than renters. In contrast, for social capital investments that do not directly impact home values, one would not expect homeowners and renters to differ in their investment rates. In this paper, we test this hypothesis using confidential and detailed individual-level panel data from Los Angeles county. We estimate the effect of homeownership on social capital investment, i.e., participation in social-capital creating activities, using a bivariate probit model and fixed effects models that control for individual-specific, time-constant heterogeneity that would otherwise cause omitted variable bias. Each model addresses the endogeneity of homeownership differently with identification arising from different sources. We find strong evidence that homeownership increases the rate of participation in block meetings, a social capital investment that should affect property values, and find no homeownership effect on three other social capital creating activities that likely do not: volunteerism, participation in a local political organization, and participation in a civic group. The results suggest that the effect of homeownership on social capital investment depends on whether the returns to such investments accrue solely to homeowners.