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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. Joshua Angrist & Alan Krueger, 1993. "Split Sample Instrumental Variables," Working Papers 699, Princeton University, Department of Economics, Industrial Relations Section..
  2. 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.
  3. Yannis M. Ioannides, 1999. "Residential Neighborhood Effects," Discussion Papers Series, Department of Economics, Tufts University 9912, Department of Economics, Tufts University.
  4. 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.
  5. Ioannides, Yannis M., 2003. "Interactive property valuations," Journal of Urban Economics, Elsevier, vol. 53(1), pages 145-170, January.
  6. 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.
  7. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  8. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. 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.
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  11. Case, Anne, 1992. "Neighborhood influence and technological change," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 491-508, September.
  12. Yannis Ioannides, 2001. "Neighborhood Income Distributions," Discussion Papers Series, Department of Economics, Tufts University 0103, Department of Economics, Tufts University.
  13. William A. Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," Working Papers 00-05-028, Santa Fe Institute.
  14. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
  15. 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..
  16. 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.
  17. 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.
  18. 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.
  19. Dusansky Richard & Wilson Paul W., 1993. "The Demand for Housing: Theoretical Considerations," Journal of Economic Theory, Elsevier, vol. 61(1), pages 120-138, October.
  20. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
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