Government intervention in the housing market: an empirical test of the externalities rationale

Testing for the presence of housing market externalities on an N-chotomous probit model indicates that neighborhood effects have an influence on household utility, that neighborhood retail activity is also influential, and that certain types of multifamily dwellings have an influence on the utility of households living in nearby single-family units. Condition of the neighborhood properties is another determinant of neighborhood utility index. Perceived condition of nearby properties was one of the strongest predictors of the neighborhood utility index. Zoning ordinances seeking to minimize externalities by regulating the location of new retail activity or multifamily housing within central cities is unjustified. The externalities rationale for housing improvement policies is confirmed .