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Interactive Property Valuations

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  • Yannis Ioannides

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Abstract

This paper develops a model of housing decisions which allows for social interactions within residential neighborhoods to impact homeowners' valuation of their own properties. The model is used to structure an empirical investigation with data from the American Housing Survey for 1985 and 1989. It explores in great detail a relatively neglected feature of the data, namely the availability of data of neighborhood clusters for standard metropolitan areas in the United States. This feature of the data allows us to model empirically the effects of social interactions at the immediate residential neighborhood level, with neighborhoods consisting of a dwelling unit and its ten nearest neighbors. Most previous work on neighborhoods has used contextual information associated with the census tract where a unit of observation belongs. It identifies the effect of endogenous social interactions and find that the impact of social interactions is much more important then the dynamic (autoregressive) structure of the model when both variables are present (but both are significant). The findings provide empirical support for the notion, common in the real estate world, of the importance of neighborhood characteristics in property valuations.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0102.

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Date of creation: 2001
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Handle: RePEc:tuf:tuftec:0102

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Keywords: neighborhood effects; housing; social interactions; property valuations;

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  1. Stephen Sheppard, 1998. "Hedonic Analysis of Housing Markets," Urban/Regional 9805001, EconWPA.
  2. Coulson, N Edward & Bond, Eric W, 1990. "A Hedonic Approach to Residential Succession," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 433-44, August.
  3. Hoyt, William H. & Rosenthal, Stuart S., 1997. "Household Location and Tiebout: Do Families Sort According to Preferences for Locational Amenities?," Journal of Urban Economics, Elsevier, vol. 42(2), pages 159-178, September.
  4. Ioannides, Yannis M. & Zabel, Jeffrey E., 2008. "Interactions, neighborhood selection and housing demand," Journal of Urban Economics, Elsevier, vol. 63(1), pages 229-252, January.
  5. Case, Anne, 1992. "Neighborhood influence and technological change," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 491-508, September.
  6. Benabou, R., 1992. "Heterogeneity, Stratification, and Growth," Working papers 93-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Anas, Alex, 1980. "A model of residential change and neighborhood tipping," Journal of Urban Economics, Elsevier, vol. 7(3), pages 358-370, May.
  8. William Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," NBER Technical Working Papers 0258, National Bureau of Economic Research, Inc.
  9. Yannis M. Ioannides, 1999. "Residential Neighborhood Effects," Discussion Papers Series, Department of Economics, Tufts University 9912, Department of Economics, Tufts University.
  10. Yannis M. Ioannides, 1999. "Neighborhood Interactions in Local Communities and Intergenerational Transmission of Human Capital," Discussion Papers Series, Department of Economics, Tufts University 9911, Department of Economics, Tufts University.
  11. Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers 1738, Harvard - Institute of Economic Research.
  12. Ioannides, Yannis M., 2004. "Neighborhood income distributions," Journal of Urban Economics, Elsevier, vol. 56(3), pages 435-457, November.
  13. Gabriel, Stuart A. & Rosenthal, Stuart S., 1999. "Location and the effect of demographic traits on earnings," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 445-461, July.
  14. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  15. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  16. Miyao, Takahiro, 1978. "Dynamic Instability of a Mixed City in the Presence of Neighborhood Externalities," American Economic Review, American Economic Association, vol. 68(3), pages 454-63, June.
  17. Yannis Ioannides, 2006. "Empirics of Social Interactions," Discussion Papers Series, Department of Economics, Tufts University 0611, Department of Economics, Tufts University.
  18. Katherine A. Kiel & Richard T. Carson, 1990. "An Examination of Systematic Differences in the Appreciation of Individual Housing Units," Journal of Real Estate Research, American Real Estate Society, vol. 5(3), pages 301-318.
  19. Strange, William, 1992. "Overlapping neighborhoods and housing externalities," Journal of Urban Economics, Elsevier, vol. 32(1), pages 17-39, July.
  20. Binder, M. & Pesaran, M. H., 1998. "Optimal Consumption Decisions under Social Interactions," Cambridge Working Papers in Economics 9805, Faculty of Economics, University of Cambridge.
  21. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  22. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
  23. Bond, Eric W. & Coulson, N. Edward, 1989. "Externalities, filtering, and neighborhood change," Journal of Urban Economics, Elsevier, vol. 26(2), pages 231-249, September.
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