Small Cities Matter, Too: The Impacts of an Airport and Local Infrastructure on Housing Prices in a Small Urban City

Cities with small populations tend not to receive as much attention in housing hedonic studies as do large metropolitan areas despite their similar economic development goals (quality of life improvements for their citizens, etc.). However, small cities, with their relatively smaller number of amenities and features, tend to have fewer numbers of variables that operate to determine house prices. Therefore, hedonic prices can be estimated adequately for a single neighborhood in a small city with publicly available data, particularly for local officials who do not have the time or financial resources to complete detailed studies of their cities. In this study, a general model is estimated that uncovers the impacts of airport-related noise, local recreational amenities, public transportation services, and schools on housing prices in a small city in metropolitan Atlanta, Georgia, USA. The implications and usefulness of this approach to local economic developers and city planners will be discussed.     

The Capitalization of Public Services and Amenities into Land Prices — Empirical Evidence from German Communities

Applying the hedonic approach to land prices, this article investigates the capitalization of public services and pure amenities in a cross section of German communities. Possible spillover effects from neighboring municipalities are explicitly included in the analysis and prove to be of considerable importance. Estimates of the impacts of local attributes on land prices are obtained taking into account the spatial structure among unobserved variables. The results confirm that differences in land prices are largely attributable to local conditions and policies. This implies a significant degree of mobility as well as high estimation of local attributes on the part of German households.     

Commodity house prices

This paper studies how commodity price movements have affected the local house prices in commodity-dependent economies, Australia and New Zealand. We build a geographically hierarchical empirical model and find that the commodity prices influence local house prices directly and also indirectly through macroeconomic variables. The impacts of commodity price changes are analogous to “income shocks” rather than “cost shocks”. Regional heterogeneity is also observed in terms of differential dynamic responses of local house prices to energy versus non-energy commodity price movements. The results are robust to alternative approaches. Directions for future research are also discussed.     

School Quality and Real House Prices: Inter- and Intrametropolitan Effects

This study focuses on explaining variations in real constant-quality house prices in jurisdictions located in multiple MSAs. Using a hedonic house price framework, we test competing theories of house price determination. Using two variants of the random coefficients model, we find that public school quality has a very large impact on real constant-quality house prices. Our results suggest that capitalization of school quality differences occurs on a per lot basis rather than per square foot of land. Also important to the explanation of variations in house prices are variables derived from urban theory, such as distance to the CBD, and from the amenity literature, such as a community's crime rate, arts, and recreational opportunities     

Permanent and transitory shocks in owner-occupied housing: A common trend model of price dynamics

Significant fluctuations in house prices have received considerable attention in recent years. An understanding of the forces underlying the departure from fundamental values is important in explaining the mechanisms underlying housing market performance and predicting potential house price changes in the future. This study constitutes the first use of a common trend (CT) model to analyze private house prices in the Swedish market. We employ a cointegration system to analyze the macro variables of consumption expenditure per capita, user costs and house prices. We decompose shocks into those resulting from fundamental variables, specified in this research as income and the interest rate, and those resulting from cyclical variables. The results indicate that interest rates play a dominant role in explaining house price swings, and are also significant in determining user costs for households in Sweden. Transitory shocks are found to have little explanatory power for house prices and user costs in the long run. A number of tests have been performed to verify the robustness of the specification and results.     

Financial information and macroeconomic forecasts

We study the forecasting power of financial variables for macroeconomic variables in 62 countries between 1980 and 2013. We find that financial variables such as credit growth, stock prices, and house prices have considerable predictive power for macroeconomic variables at the one- to four-quarter horizons. A forecasting model that includes financial variables outperforms the World Economic Outlook (WEO) forecasts in up to 85% of our sample countries at the four-quarter horizon. We also find that cross-country panel models produce more accurate out-of-sample forecasts than individual country models.     

Measuring the value of urban amenities

This paper develops a model for estimating price gradients for several urban amenities that departs from traditional techniques. The approach used is both intuitively appealing and fully consistent with basic urban location theory developed over the past decade. Multidimensional price gradients are estimated for such amenities as low crime, clean air, accessibility to work, the local quality of education and local taxes. In addition subgroup analysis allows the comparison of the estimated “shadow prices” for two different income groups.     

Does survey experience affect respondents’ reported level of satisfaction?

Web surveys are becoming an indispensable tool for quantitative researchers, and online survey panels have proliferated in recent years. However, little research has addressed the challenges of using online panels, namely the potential effects of respondents’ survey experience, also known as panel conditioning. This paper is based on a study of Danish parents’ day care arrangements and their associated level of satisfaction. A survey was conducted through an online panel and included measurements of past survey participation. Through tests of independence on key variables and the application of various ordered logit models, we find no significant evidence that survey experience affects respondents’ reported level of satisfaction. These results persist when testing the potential interaction between survey experience and experiences with day care services. Furthermore, we relate our results to the existing literature and discuss the possibility of different effects cancelling each other out. This leads us to recommendations on the use of online panels and suggestions for elaboration in future research.     

Hedonic markets and sorting equilibria: Bid-function envelopes for public services and neighborhood amenities

Hedonic regressions with house value as the dependent variable are widely used to study public services and neighborhood amenities. This paper builds on the theory of household bidding and sorting across communities to derive bid-function envelopes, which provide a form for these regressions. This approach allows for household heterogeneity and multiple amenities, yields estimates of the price elasticity of amenity demand directly from the hedonic without a Rosen two-step procedure, and provides tests of hypotheses about sorting. An application to Cleveland area data from 2000 yields price elasticities for school quality and neighborhood ethnic composition and supports the sorting hypotheses.     

Green Online vs Green Offline preferences on local public goods trade-offs and house prices

This paper focuses on the relationship between (i) house prices and (ii) local green public goods. The main objective of the paper is to analyse a specific house-pricing mechanism which reflects the utility of being Green Offline, i.e. having access to green areas, versus the utility derived from the ability to be Green Online. The focus will be on data from European Union countries, and in particular Germany. Our results show that on an aggregate level for the EU there appears to be a clear indication for an irrational house-pricing mechanism, ignoring the negative trade-off effect from Green Online and Green Offline public investments (goods and assets). Meanwhile, on an individual level, for the case of Germany, more detailed bounded rationality effects of fashion-driven supply on house pricing are observed, positively related to Green Online values but negatively related to high Green Offline preferences. In conclusion, we find that house prices throughout Europe do not reflect a rational social change in green preferences, but tend to irrationally overprice Green Online values, which may create instability on the local housing market in the long run.     

Price dynamics in public and private housing markets in Singapore

In down-payment constrained housing consumption models, increases in house prices could trigger household mobility decisions in housing markets. This study empirically tests house price dynamics associated with the mobility of households in the public resale and private housing markets in Singapore. The results show that stochastic permanent breaks were found in the public housing resale prices and private housing prices. The relative prices drift apart occasionally, but mean-revert to a long-run fundamental equilibrium. Error correction mechanisms and lagged public housing prices were also found to have significant explanatory effects for price changes in the private housing markets. The results support the hypothesis that household mobility creates co-movements of prices in public and private housing submarkets in the long run.     

The Quality of Life in England and Wales*

Local amenities play an important role in determining where we choose to live and our overall quality of life (QOL). In many cases, however, amenities do not have prices and will therefore be underprovided by the market. In this paper, we use individual and county level data for England and Wales to estimate implicit amenity prices and to calculate an index of QOL for each county. Among our findings is a large negative price on air pollution. The range in QOL across counties is estimated to be in excess of 2,000 pounds per year.     

Capitalization of interjurisdictional fiscal differentials: An alternative approach

In virtually every study concerning capitalization of fiscal differentials into property values, the unit of observation has been a local jurisdiction or an individual house sale within a jurisdiction. Urban economic theory suggests that capitalization of fiscal differentials should be most obvious at the border of two jurisdictions. Housing price differentials between adjacent blocks at the border of two jurisdictions will be used to study capitalization. Such an approach reduces problems associated with measurement of (dis)amenities and public services, and with the use of a distance variable in urban areas with multiple employment or recreation centers.     

Which factors capitalize into house prices? A Bayesian averaging approach

This paper investigates the robustness of 33 community-specific explanatory variables for house prices in the Swiss metropolitan area of Zurich using Bayesian model averaging. The analysis suggests a new way to perform hedonic variable selection and provides a minimal list of variables which may serve as a priori constraints when predicting house prices or estimating the effect of other community-specific characteristics in a metropolitan area in a highly developed country. In the context analyzed, the main variables which capitalize with a high posterior probability are location-specific real estate characteristics, municipal taxes and expenditure for culture, health and social well-being. Demographic as well as other socio-economic controls seem to be of minor importance.     

The phantom of the opera: Cultural amenities, human capital, and regional economic growth

We analyze the extent to which endogenous cultural amenities affect the spatial equilibrium share of high-human-capital employees. To overcome endogeneity, we draw on a quasi-natural experiment in German history and exploit the exogenous spatial distribution of baroque opera houses built as a part of rulers' competition for prestigious cultural sights. Robustness tests confirm our strategy and strengthen the finding that proximity to a baroque opera house significantly affects the spatial equilibrium share of high-human-capital employees. A cross-region growth regression shows that these employees induce local knowledge spillovers and shift a location to a higher growth path.     

A spatio-temporal model of house prices in the USA

This paper provides an empirical analysis of changes in real house prices in the USA using State level data. It examines the extent to which real house prices at the State level are driven by fundamentals such as real per capita disposable income, as well as by common shocks, and determines the speed of adjustment of real house prices to macroeconomic and local disturbances. We take explicit account of both cross-sectional dependence and heterogeneity. This allows us to find a cointegrating relationship between real house prices and real per capita incomes with coefficients (1,−1)$(1,-1)$, as predicted by the theory. We are also able to identify a significant negative effect for a net borrowing cost variable, and a significant positive effect for the State level population growth on changes in real house prices. Using this model we then examine the role of spatial factors, in particular, the effect of contiguous states by use of a weighting matrix. We are able to identify a significant spatial effect, even after controlling for State specific real incomes, and allowing for a number of unobserved common factors. We do, however, find evidence of departures from long run equilibrium in the housing markets in a number of States notably California, New York, Massachusetts, and to a lesser extent Connecticut, Rhode Island, Oregon and Washington State.     

Residential investment and house prices in a multi-sector monetary business cycle model

This paper develops a three-sector quantitative dynamic stochastic general equilibrium model to account for some of the salient business cycle properties concerning residential investment and house prices. We depart from the traditional Real Business Cycle setup by incorporating monetary frictions and credit market activities into the model economy. The model generates the high volatility of residential investment and hours worked in the house investment goods producing sector, as well as the procyclicality of house prices. The lead-lag pattern of house investment also roughly conforms with the data. We find that monetary policy and nominal interest rates play a special role in the determination of house prices. Money shocks generate remarkably volatile residential investment and house prices.     

What drives returns to euro area housing? Evidence from a dynamic dividend–discount model

We apply a dynamic dividend–discount model to analyse housing returns for eight euro area countries comprising over 90% of euro area GDP, both individually and as a panel. A vector autoregressive model (VAR) is estimated for four variables – excess return to housing, rents, the real interest rate and real disposable per capita income – using quarterly data over the period 1978–2009. This empirical investigation – which allows for a decomposition of house price movements into movements in rent (cash-flow) and expected return news components – indicates that the bulk of the variability of euro area house price movements can be attributed to movements in fundamentals. There remains nonetheless an important but less sizeable influence of market-wide (or expected-return) variations in house prices. Country-specific estimation indicates considerable heterogeneity around the euro area result, both for what concerns long-term impacts and dynamics. Notably, changes in expected returns play a relatively strong role in the house prices of Ireland and Spain.     

When individuals behave as marketing firms: Probability discounting and reputation in peer-to-peer markets

Reputation systems in peer-to-peer markets can shed light on how individuals who operate in such markets manage both the consumer behavior setting scope and reinforcers, thus behaving similarly to marketing firms. Based upon the probability discounting framework, this paper investigated the influence of reputation on subjective values and willingness to pay. Renting prices of 386 properties listed on Airbnb in two cities in Brazil were analyzed. Results indicated that reputation alone does not generate significant differences in average prices per guest, although it has an indirect effect that enhances the influence of other variables on prices, particularly the number of amenities.     

Estimating the Demand for Housing, Land, and Neighbourhood Characteristics

This paper provides estimates of the structure of demand for individual housing and neighbourhood characteristics and for land in two British cities. We estimate a hedonic price function, and from this obtain the implicit prices of house attributes. These prices are used to estimate a demand system for each city. These perform well, and enable us to calculate price and income elasticities for each of the non-dichotomous characteristics and for land. To counteract criticisms of demand estimates derived within the hedonic framework a method is developed for selecting an appropriate set of instrumental variables. Estimates derived from this method, however, differ only slightly from those obtained using the conventional techniques. Several features of these estimates provide insights into the unusual characteristics of the British housing market, the effects of constraints imposed by land use planning, and the effects of changing income distribution on the structure of demand.