Occupant Well-Being and House Values

A difficulty in identifying the contribution of structure and neighborhood attributes to the market value of residential property is the lack of data on subjective characteristics of the neighborhood (friendliness of neighbors, proximity to friends and acquaintances) or difficult-to-observe subjective attributes of the structure itself (such as "curb appeal" or the presence of unpleasant odors). Concern may also arise from the understanding that the observed market price of most residential property is the result of a process of bargaining. A buyer who is optimistic by nature may assume that the quality of the neighborhood will be wonderful, or that the unusual odor will eventually go away, and therefore be willing to bid a higher price for the structure than a prospective buyer who is more nervous about all the ways that a house purchase can generate disappointment. Estimates of the value of structure or neighborhood attributes may tell us as much about the emotional affect of the buyer as they do about the actual costs or benefits of the attributes (or of cleaning or mitigating them). These observations suggest that incorporating data on the levels of subjective well being (SWB) and emotional affect of the buyers might be usefully applied to improve hedonic analysis of housing markets. The goal of this paper is to undertake such analysis and to explore the potential for improved analysis of the value of residential property. We make use of unique data collected as part of a multi-year analysis of health outcomes, matched with data on market transactions of residential property in three provinces of the Netherlands. We employ the spatial model developed by Kelejian and Prucha (2010) which allows us to incorporate a spatial error specification, as well explicitly control for possible endogeneity between the measure of SWB and the transaction price. By examining aggregate measures of SWB at different spatial scales, we obtain insights into whether these measurements are capturing subjective characteristics of the community, the neighborhood or the structure and the buyer who negotiateover the eventual price.