Hedonic Methods in Housing Markets: Pricing Environmental Amenities and Segregation

280 Pages·2008·2.38 MB·English

by  Andrea Baranzini

Hedonic Methods in Housing Markets
Andrea Baranzini José Ramirez
(cid:120)

Caroline Schaerer Philippe Thalmann
(cid:120)
Editors

Hedonic Methods in Housing
Markets

Pricing Environmental Amenities

a nd Segregation
Editors
Andrea Baranzini José Ramirez
Geneva School of Business Administration Geneva School of Business Administration
(HEG Genève) (HEG Genève)
University of Applied Sciences Western University of Applied Sciences Western
Switzerland Switzerland
Switzerland Switzerland

Caroline Schaerer Philippe Thalmann
Geneva School of Business Administration École Polytechnique Fédérale
(HEG Genève) de Lausanne
University of Applied Sciences Western Switzerlan d
Switzerland
Switzerland

ISBN: 978-0-387-76814-4 e-ISBN: 978-0-387-76815-1
DOI: 10.1007/978-0-387-76815-1

Library of Congress Control Number: 2008931292

(cid:164) 2008 Springer Science+Business Media, LLC
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Acknowledgements
This book would not have been possible without the help, collaboration and sup-
port of many persons. All the contributions have been personally commissioned
and we have tried to coordinate the contents, so as to avoid overlap and foster
complementarities, in order to treat the most relevant questions related to the ap-
plication of the hedonic approach to the valuation of environmental amenities and
to segregation/discrimination issues. Our greatest gratitude is to the authors, who
have participated with much enthusiasm to this project and spent a lot of time
in writing and revising their chapters. Draft papers were presented and discussed
during an intense workshop at the Geneva School of Business Administration on
29 and 30 June 2007. Each selected chapter was reviewed and revised several
times, with particular attention to presenting the main results of the literature, to
fostering intuition and to showing policy implications.

We are particularly indebted to Laurence Infanger, Eva Robinson and Bea Van
Gessel for their help in the organization and management of the Geneva Work-
shop. Thanks to Professor Jacques Silber, Bar-Ilan University, Israel, for his help
in revising some of the chapters. Many thanks to Pierre-Yves Odier for putting the
book into form: this was not an easy task, with so many different chapter formats
and short deadlines.

We gratefully acknowledge financial support for the Geneva workshop and our
own research in the field of hedonics by the Geneva School of Business Admini-
stration (HEG Genève); the University of Applied Sciences Western Switzerland
(HES-SO); the Research group on the Economics and Management of the Envi-
ronment (REME) of the Swiss Federal Institute of Technology, Lausanne (EPFL);
the Swiss Academy of Humanities and Social Sciences; and the Swiss National
Science Foundation, National Research Program 54 “Sustainable development of
the built environment”.

Last but not least, we are very grateful to our managing editors at Springer,
Barbara Fess and Gillian Greenough, for support, advice and their faith in our
project.

A.B., J.R., C.S. & P.T.
Geneva, 1st February 2008
Contents
Acknowledgements.................................................................................................V
List of Contributors.............................................................................................XIII
List of Abbreviations..........................................................................................XVII
List of Figures.....................................................................................................XIX
List of Tables.......................................................................................................XXI
Introduction............................................................................................................1
1. Basics of the Hedonic Price Model.............................................................1
2. The Contributions in this Volume...............................................................7
References.........................................................................................................11
PART I Methods...................................................................................................13
1 Theoretical Foundations and Empirical Developments in Hedonic
Modeling......................................................................................................15
1.1 Introduction...........................................................................................15
1.2 Theoretical Foundations.......................................................................16
1.3 Estimation of the Hedonic Price Function............................................20
1.4 Nonmarket Valuation within the Hedonic Framework........................27
1.5 Conclusions...........................................................................................33
References.........................................................................................................34
2 Hedonic Modeling of the Home Selling Process......................................39
2.1 Introduction...........................................................................................39
2.2 Hedonic Pricing Framework.................................................................40
2.3 Survey of the Theoretical Literature.....................................................42
2.3.1 Search Theory and Single-Period Models of Search...................42
2.3.2 Pricing with Demand Uncertainty and Multi-period Models of
Search...........................................................................................43
2.4 Survey of the Empirical Literature.......................................................45
2.4.1 Explaining Time-on-Market........................................................45
2.4.2 Time-on-Market as a Determinant of Selling Price.....................45
2.4.3 Factors Influencing Selling Price and Selling Time....................47
2.5 Directions for Further Research............................................................51
2.6 Conclusions...........................................................................................52
References.........................................................................................................53
VIII Contents
PART II Applications to Urban Environment Issues.......................................55
3 Hedonic Property Value Studies of Transportation Noise: Aircraft and
Road Traffic................................................................................................57
3.1 Introduction...........................................................................................57
3.2 Early HP Noise Studies and Prior Literature Reviews.........................59
3.2.1 Meta-Analyses of Transportation Noise......................................60
3.3 Research Outline...................................................................................60
3.4 Spatial Heterogeneity: Housing Market Segmentation........................61
3.5 Spatial Models: Autoregression and Autocorrelation..........................64
3.6 Housing Market Adjustment Models...................................................66
3.7 Alternative Noise Indices and Community Annoyance.......................69
3.8 Stated Preference Methods and Hedonic Prices...................................72
3.9 Summary and Concluding Remarks.....................................................75
References.........................................................................................................77
4 Pricing the Homebuyer’s Countryside View...........................................83
4.1 Introduction...........................................................................................83
4.2 Landscape and its Economic Valuation................................................84
4.2.1 Ground Cover...............................................................................85
4.2.2 Landscape Composition and Landscape Ecology.......................86
4.2.3 Distance from Farmland and Forest.............................................86
4.2.4 The View of the Landscape.........................................................87
4.3 Case Study: Periurban Landscape Prices in the Besançon Area..........90
4.3.1 Geographical and Economic Models, Study Region, and Data..90
4.3.2 Results..........................................................................................94
4.4 Summary and Conclusions...................................................................97
References.........................................................................................................98
5 Semi-Parametric Tools for Spatial Hedonic Models: An Introduction
to Mixed Geographically Weighted Regression and
Geoadditive Models..................................................................................101
5.1 Introduction.........................................................................................101
5.2 Generalized Additive Models (GAM)................................................103
5.2.1 GAM with Distance Regressors................................................104
5.2.2 GAM with Smooth Coordinates or Geoadditive Model............105
5.2.3 Geoadditive Models with Spatially Varying Coefficients.........107
5.3 An Example using GAM Models to Estimate Distances and
Density Effects....................................................................................108
5.3.1 Two Features of Geoadditives Models Illustrated with a
“Wrong” Model.........................................................................109
5.3.2 In Search of a Better Model.......................................................111
5.3.3 Choosing a Parametric Model....................................................113
5.4 GWR and MGWR Tools....................................................................114
5.4.1 Weights Matrix..........................................................................115
5.4.2 Estimation of GWR Coefficients...............................................115
Contents IX

5.4.3 Estimation of MGWR Coefficients...........................................115
5.4.4 Model Specification...................................................................116
5.5 Comparing the Estimation of Spatial Variable Coefficient Models
by GAM and MGWR.........................................................................120
5.5.1 Geoadditive Models vs. MGWR Spatial Varying Intercept......122
5.5.2 Spatially Varying Coefficients: GAM vs. MGWR....................124
5.6 Conclusion..........................................................................................125
References.......................................................................................................126
6 Estimating Hedonic Models of Consumer Demand with an Application
to Urban Sprawl.......................................................................................129
6.1 Introduction.........................................................................................129
6.2 The Data..............................................................................................131
6.3 The Model...........................................................................................133
6.4 Estimation...........................................................................................137
6.4.1 First Step: Estimating the Hedonic Price Functional.................138
6.4.2 Second Step: Recovering the Random Coefficients..................140
6.4.3 Third Step: Aggregation of Preferences....................................140
6.5 Results.................................................................................................142
6.5.1 Hedonic Pricing Estimates.........................................................143
6.5.2 Preferences Estimates................................................................145
6.5.3 Policy Exercise #1: Raising Suburban Density.........................149
6.5.4 Policy Exercise #2: Monocentric Los Angeles..........................150
6.6 Conclusion..........................................................................................152
References.......................................................................................................153
PART III Applications to Segregation and Discrimination Issues................157
7 Conceptual and Operational Issues in Incorporating Segregation
Measurements in Hedonic Price Modeling............................................159
7.1 Introduction.........................................................................................159
7.2 Taxonomies of Segregation................................................................160
7.3 Segregation and Hedonic Pricing Modeling.......................................162
7.4 The Use of Segregation Measures in Hedonic Modeling...................163
7.4.1 Concepts of Segregation vs. General Description of
Racial-Ethnic Mix......................................................................163
7.4.2 Global vs. Local Measures.........................................................164
7.4.3 Aspatial vs. Spatial Segregation Measures................................169
7.4.4 The Nature and Impacts of Segregation....................................173
7.5 Summary and Conclusion...................................................................173
References.......................................................................................................174
X Contents
8 Using Hedonic Models to Measure Racial Discrimination and Prejudice
in the U.S. Housing Market.....................................................................177
8.1 Introduction.........................................................................................177
8.2 Modeling Framework.........................................................................182
8.2.1 The General Hedonic Model......................................................182
8.2.2 Four Models of Discrimination and Prejudice in the Housing
Market........................................................................................183
8.3 Complications Arising in Estimating Racial Impacts on House
Prices...................................................................................................190
8.3.1 Schelling Outcomes/Tipping.....................................................190
8.3.2 Omitted Variable Bias Due to Lack of Significant
Neighborhood Characteristics....................................................191
8.3.3 Endogeneity...............................................................................192
8.3.4 Appropriate Data........................................................................192
8.4 Literature Review – Current Evidence on Racial Discrimination
and Prejudice in the U.S. Housing Market.........................................194
8.5 Conclusion..........................................................................................198
References.......................................................................................................199
9 The Problem with Environmental Justice Studies (And How Hedonics
Can Help)..................................................................................................203
9.1 Literature Review...............................................................................205
9.2 Conceptual Framework.......................................................................207
9.2.1 Hedonic Models of Environmental Discrimination...................208
9.2.2 Environmental Price Discrimination.........................................208
9.2.3 Envy and Equity.........................................................................211
9.3 Empirical Framework.........................................................................212
9.3.1 Price Discrimination..................................................................212
9.3.2 No-Envy Criterion.....................................................................214
9.3.3 Previous Findings.......................................................................216
9.4 Potential for Methodological Advances.............................................217
9.5 Conclusion..........................................................................................220
References.......................................................................................................221
10 Distinguishing Racial Preferences in the Housing Market: Theory and
Evidence....................................................................................................225
10.1 Introduction.........................................................................................225
10.2 A Simple Model of Racial Sorting.....................................................227
10.2.1 Racial Preferences and Hedonic Prices.....................................229
10.2.2 Characterizing the Sorting Equilibrium: An Example...............230
10.2.3 A Second Example.....................................................................232
10.2.4 Decentralized Versus Centralized Racism.................................233
10.3 The Correlation of Neighborhood Race and Amenities.....................234
10.3.1 Sorting at Boundaries.................................................................235
10.3.2 Hedonic Price Regressions........................................................238
10.4 The Bundling of Neighborhood Race and Amenities........................240
Contents XI

10.4.1 Hedonic Demand Estimation.....................................................242
10.4.2 An Alternative Approach to Estimating Preferences –
Discrete Choice..........................................................................242
10.5 Conclusion..........................................................................................243
References.......................................................................................................244
Appendix.............................................................................................................245
Appendix – Applying Hedonics in the Housing Market: An Illustration.....247
A.1 Introduction.........................................................................................247
A.1.1 The Setting.................................................................................247
A.1.2 The Conceptual Model...............................................................248
A.1.3 Initial Statistical Analysis..........................................................248
A.1.4 Data Issues.................................................................................249
A.2 A Worked-Out Example : The Harrison & Rubenfield (1978) Data.250
A.2.1 Price Variable.............................................................................251
A.2.2 Air Pollution Variable................................................................252
A.2.3 Other Variables..........................................................................252
A.2.4 Econometric Modelling.............................................................252
A.2.5 Modelling Approach..................................................................254
A.3 Final notes...........................................................................................258
References.......................................................................................................258
Addendum: R-code.........................................................................................259
General index.......................................................................................................265
Author index.........................................................................................................271