Housing Tenure Choice Implications of Social Networks: A Structural Model Approach

The influence of social networks on housing tenure choice remains conspicuously unexplored despite the fact that social networks are crucial in information dissemination. Social networks can encourage the attainment and retention of homeownership by channeling important knowledge and information regarding household finance, wealth management, home maintenance, etc. Social networks also provide greater connection to the location thereby potentially encouraging locational stability and homeownership. The analysis of the relationship between social networks and housing tenure decisions, however, is complicated because of the issue of mobility. Because social networks in large part are tied to the physical location, this relationship cannot be studied in isolation from the mobility decision. This paper presents a dynamic model of joint mobility-housing tenure decision and social network accumulation. Parameters of the dynamic program are estimated using a simulated method of moments (SMM) procedure. The data source is the Indonesian Family Life Survey (IFLS), a large scale survey of Indonesian households, which contains rich information on community participation by households allowing the construct of a comprehensive measure of social networks. JEL Classification: D85, J6, R, R2, R21, Z13