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A Dynamic Model of Demand for Houses and Neighborhoods

  • Patrick Bayer
  • Robert McMillan
  • Alvin Murphy
  • Christopher Timmins

We develop a tractable model of neighborhood choice in a dynamic setting along with a computationally straightforward estimation approach. This approach uses information about neighborhood choices and the timing of moves to recover moving costs and preferences for dynamically-evolving housing and neighborhood attributes. The model and estimator are potentially applicable to the study of a wide range of dynamic phenomena in housing markets and cities. We focus here on estimating the marginal willingness to pay for non-marketed amenities – neighborhood racial composition, air pollution, and violent crime – using rich dynamic data. Consistent with the time-series properties of each amenity, we find that a static demand model understates willingness to pay to avoid pollution and crime but overstates willingness to pay to live near neighbors of one’s own race. These findings have important implications for the class of static housing demand models typically used to value urban amenities.

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Paper provided by Duke University, Department of Economics in its series Working Papers with number 11-16.

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Length: 44
Date of creation: 2011
Date of revision:
Handle: RePEc:duk:dukeec:11-16
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Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097

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  1. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
  2. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Working Papers 07-27, Center for Economic Studies, U.S. Census Bureau.
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  27. Ortalo-Magne, Francois & Rady, Sven, 2002. "Tenure choice and the riskiness of non-housing consumption," Journal of Housing Economics, Elsevier, vol. 11(3), pages 266-279, September.
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  32. Bayer, Patrick & Keohane, Nathaniel & Timmins, Christopher, 2009. "Migration and hedonic valuation: The case of air quality," Journal of Environmental Economics and Management, Elsevier, vol. 58(1), pages 1-14, July.
  33. Steve Gibbons, 2003. "The Costs of Urban Property Crime," CEP Discussion Papers dp0574, Centre for Economic Performance, LSE.
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