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A Dynamic Model of Demand for Houses and Neighborhoods

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

Abstract

This paper develops a dynamic model of neighborhood choice along with a computationally light multi-step estimator. The proposed empirical framework captures observed and unobserved preference heterogeneity across households and locations in a flexible way. The model is estimated using a newly assembled data set that matches demographic information from mortgage applications to the universe of housing transactions in the San Francisco Bay Area from 1994- 2004. The results provide the first estimates of the marginal willingness to pay for several non-marketed amenities – neighborhood air pollution, violent crime and racial composition – in a dynamic framework. Comparing these estimates with those from a static version of the model highlights several important biases that arise when dynamic considerations are ignored.

Suggested Citation

  • Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2011. "A Dynamic Model of Demand for Houses and Neighborhoods," NBER Working Papers 17250, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17250
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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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