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Title: Language, Agglomeration and Hispanic Homeownership

Citation Type: Journal Article

Publication Year: 2009

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Abstract: As of the fourth quarter of 2007, 74.9% of white non-Hispanic families but only48.5% of Hispanic families owned homes. We argue that low rates of homeownershipin Hispanic communities create a self-reinforcing mechanism thatcontributes to this large disparity. In part, this occurs because proximity toother homeowners belonging to a familys social network improves access toinformation about how to become a homeowner. Role model effects may alsobe relevant. We investigate these issues using household-level data on outof-state movers from the 2000 Decennial Census. Three especially importantresults are obtained. First, proximity to Hispanic homeowners in the 1995 placeof residence increases the propensity of a Hispanic family to own a home in2000. Second, that effect is especially strong with respect to proximity to weakEnglish-speaking Hispanic homeowners. Third, these patterns hold regardlessof the Hispanic familys own ability to speak English. From a policy perspective,these results suggest that local programs designed to promote homeownershipamong weak English-speaking Hispanic families likely increase Hispanichomeownership beyond just the immediate program participants.This article investigates the impact of language and access to information on Hispanicwhite gaps in homeownership: as of the fourth quarter of 2007, 74.9% of white non-Hispanic families owned homes, but only 48.5% of Hispanic families were owner-occupiers.1 Central to the study are four closely related ideas that will guide the research. First, to become a homeowner one must obtain information about the real estate market and financing opportunities. Second, in the United States, English-speaking households will find it easier to obtain that information. Third, for various reasons, it is possible that information will be more readily available to Hispanic households as the size of the local Hispanic community increasesa scale effect. The fourth consideration is the influence of local peer groups on preference formation: if local peers are homeowners that may increase an individual's preference for homeownership.Drawing on these ideas, this study will examine the impact of proximity to English and non-English speakers (both Hispanic and non-Hispanic) on the probability that a Hispanic family of a given language ability becomes a homeowner. To the extent that language barriers contribute to Hispanicwhite homeownership gaps, those effects are likely to vary across neighborhoods and cities with the size of the local Hispanic community and also the extent to which non-English-speaking Hispanic households live in linguistically isolated neighborhoods. Evidence of such effects could prompt spatially targeted policy efforts designed to overcome language barriers that restrict access to information about homeownership.In the labor literature, a large number of studies have examined the degree to which an individual's own ability to speak English affects that worker's employment opportunities and earnings. These studies generally find that employment opportunities and earnings increase with the English-speaking ability of the household.2 In the housing area, the inability to speak English has also been found to reduce the likelihood that a family owns their home (e.g., Krivo 1995, Myers and Lee 1998, Coulson 1999, Flippen 2001, Painter, Gabriel and Myers 2001). Together, these studies provide compelling evidence that an individual's own ability to speak English is an important determinant of his or her economic outcomes, both in the labor and housing markets.Of course, evidence that lack of English-speaking ability adversely affects an individual's economic outcomes does not by itself identify the mechanism by which this occurs. Two possible mechanisms seem especially plausible. The first is discrimination against non-English speakers.3 However, although the possible role of discrimination against non-English speakers is important, it is not a factor that this article will be able to shed much light on.4 Instead, this article focuses on a second mechanism, access to information.In a predominantly English-speaking country, an inability to speak English will clearly increase the cost of acquiring information. With regard to homeownership, the role of access to information is difficult to pin down. Nevertheless, Lee, Tornatzky and Torres (2004) provide tentative evidence that access to information affects the propensity of Spanish-speaking Hispanic households to become homeowners. In addition, lack of knowledge among Hispanics about financial and real estate markets has been documented in the Congressional Hispanic Caucus Institute (2004) and National Council of La Raza (2004). Results from Fannie Mae's 2003 National Housing Survey also suggest that Spanish-only-speaking Hispanics are less likely to have accurate information than other groups.5 Additional studies of the impact of language and knowledge on homeownership are reported in Cortes et al. (2005). Together, these studies are at least strongly suggestive that limited access to information adversely affects the propensity for homeownership among Hispanic households.6A feature of all of these studies is their focus on the ability of the individual in question to speak English. Our study takes a different tact by focusing on the importance of proximity to other English- and non-English-speaking homeowners, both Hispanic and non-Hispanic. The idea behind this approach is that the presence of nearby homeowners belonging to the individual's social network will facilitate access to information necessary to navigate the home purchase process.Our emphasis on the scale of the local population of Hispanic and non-Hispanic homeowners, both English and non-English-speaking, is motivated by recent studies of agglomeration economies. Most often, these studies have tested for the extent to which agglomeration of population and economic activity enhances productivity and growth (see Rosenthal and Strange (2003, 2008) for recent examples and Rosenthal and Strange (2004, 2006) for extensive reviews of this literature). Underlying this work are long-standing arguments that knowledge spillovers and the related flow of information are important benefits that arise from spatial concentration of economic activity (Marshall 1920).7 As will become apparent, our empirical approach is designed to test for the presence of agglomeration effects on consumer decisions. In this respect, our study is most closely associated with work by George and Waldfogel (2003) and Waldfogel (2003, 2005). These studies find that local radio stations, newspapers and restaurants are more likely to cater to the tastes of specific minority groups as the size of the local minority population increases. In the case of media services, evidence further indicates that this concentration results in higher rates of minority radio listening and newspaper readership.We are aware of few studies that have explicitly examined the influence of the English-speaking ability of the local community on an individual's economic outcomes. In the labor literature, McManus (1990) reports that the presence of larger Hispanic enclaves enhances job opportunities for Hispanic men while reducing the importance of English-speaking ability.8Cortes et al. (2005) note that the concentration of Hispanic households into ethnic enclaves (or barrios) is a prominent characteristic of many Hispanic communities, but the study does not establish the effect of those enclaves on homeownership opportunities.The impact of proximity to Hispanic and non-Hispanic homeowners on an individual Hispanic family's propensity for homeownership likely works at least in part by facilitating the flow of information pertinent to homeownership. For example, in areas with high concentrations of Hispanics, real estate brokers and mortgage lenders are able to spread out the fixed costs of making information available in Spanish. The same is true of the fixed costs associated with hiring Spanish speakers to facilitate transactions. These activities would be consistent with the findings of George and Waldfogel (2003) and Waldfogel (2003, 2005). Agglomeration could further reduce knowledge barriers because a larger number of firms would likely find it profitable to invest in marketing homes to Hispanics. The increase in the number of firms doing business in the Hispanic community would result in more aggressive competition and improved services. In addition, proximity to a high concentration of Hispanic homeowners would likely facilitate knowledge of the home-buying process through expanded word-of-mouth networks as well as various local civic organizations (e.g., religious establishments). All of these possibilities echo evidence in the urban agglomeration literature that proximity facilitates the flow of information.A different mechanism by which proximity to existing homeowners might influence a family's propensity for homeownership is through peer group or role model effects. A large literature has considered the effect of peer groups on preference formation in other contexts, including, for example, school performance and teen pregnancy (e.g., Winkler 1975, Evans, Oates and Schwab 1992, Epple and Romano 1998, Betts and Morell 1999). In the present context, we cannot rule out the possibility that proximity to homeowners in or outside of the individual's social network increases the individual's desire to become a homeowner.9 We will return to this point later in the article.We examine these issues using the year-2000 Census five percent Integrated Public Use Micro Sample (IPUMS) obtained on the Web (http://www.ipums.org). Our empirical model is designed to document the degree to which proximity to existing homeowners affects an individual's own propensity to own a home. At the core of our model are four key variables. The first is the share of the local population that is of the individual's own ethnicity/ra

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Authors: Haurin, Donald R.; Rosenthal, Stuart S.

Periodical (Full): Real Estate Economics

Issue: 2

Volume: 37

Pages: 155-183

Data Collections: IPUMS USA

Topics: Housing and Segregation, Race and Ethnicity

Countries: United States