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Neighbourhood effects and housing demand

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  • Yannis M. Ioannides

    (Department of Economics, Tufts University, Medford, MA 02155, USA)

  • Jeffrey E. Zabel

    (Department of Economics, Tufts University, Medford, MA 02155, USA)

Abstract

In this paper, we estimate a model of housing demand with neighbourhood effects. We exploit special features of the national sample of the American Housing Survey and properties of housing markets that allow us to create 'natural' instruments and therefore identify the impact of social interactions. We find evidence of both endogenous and contextual neighbourhood effects. We report two alternative sets of estimates for neighbourhood effects that differ in terms of the instruments we use for estimating the model. When the endogenous neighbourhood effect is large the respective contextual effects are weak, and vice versa. The elasticity of housing demand with respect to the mean of the neighbours' housing demands (the endogenous effect) ranges from 0.19 to 0.66 and is generally very significant. The contextual effects are also very significant. A key such effect, the elasticity with respect to the mean of neighbours' permanent incomes, ranges from 0.17 to 0.54. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.740
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 18 (2003)
Issue (Month): 5 ()
Pages: 563-584

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Handle: RePEc:jae:japmet:v:18:y:2003:i:5:p:563-584

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  1. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  2. Ioannides, Yannis M., 2004. "Neighborhood income distributions," Journal of Urban Economics, Elsevier, vol. 56(3), pages 435-457, November.
  3. Ioannides, Yannis M., 2003. "Interactive property valuations," Journal of Urban Economics, Elsevier, vol. 53(1), pages 145-170, January.
  4. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  5. Ellickson, Bryan, 1981. "An alternative test of the hedonic theory of housing markets," Journal of Urban Economics, Elsevier, vol. 9(1), pages 56-79, January.
  6. Dusansky Richard & Wilson Paul W., 1993. "The Demand for Housing: Theoretical Considerations," Journal of Economic Theory, Elsevier, vol. 61(1), pages 120-138, October.
  7. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  8. Joshua D. Angrist & Alan B. Krueger, 1995. "Split Sample Instrumental Variables," NBER Technical Working Papers 0150, National Bureau of Economic Research, Inc.
  9. Rapaport, Carol, 1997. "Housing Demand and Community Choice: An Empirical Analysis," Journal of Urban Economics, Elsevier, vol. 42(2), pages 243-260, September.
  10. Olsen, Edgar O., 1987. "The demand and supply of housing service: A critical survey of the empirical literature," Handbook of Regional and Urban Economics, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 25, pages 989-1022 Elsevier.
  11. Brock, William A. & Durlauf, Steven N., 2001. "Interactions-based models," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 54, pages 3297-3380 Elsevier.
  12. Case, Anne, 1992. "Neighborhood influence and technological change," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 491-508, September.
  13. Mills, Edwin S. & Simenauer, Ronald, 1996. "New Hedonic Estimates of Regional Constant Quality House Prices," Journal of Urban Economics, Elsevier, vol. 39(2), pages 209-215, March.
  14. Goodman, Allen C., 1988. "An econometric model of housing price, permanent income, tenure choice, and housing demand," Journal of Urban Economics, Elsevier, vol. 23(3), pages 327-353, May.
  15. Zabel, Jeffrey E, 1999. "Controlling for Quality in House Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 19(3), pages 223-41, November.
  16. Ioannides, Yannis M., 2002. "Residential neighborhood effects," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 145-165, March.
  17. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  18. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
  19. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
  20. Angrist, Joshua D & Krueger, Alan B, 1995. "Split-Sample Instrumental Variables Estimates of the Return to Schooling," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 225-35, April.
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