Internalizing Neighborhood Externalities: The Effect of Subdivision Size and Zoning on Residential Lot Prices

Though land-development regulations potentially control neighborhood externalities, the developer of a residential subdivision contributes to that control by developing a larger parcel of land. This paper reports estimates of the effect of parcel size on the sale price of developed building lots. The results indicate that adding an acre to the median development increases lot prices by about 3%. Amenities appear to be income normal, and the return to parcel size is greater in unincorporated areas, perhaps due to less intensive governmental control over externalities.     

Land Value and Parcel Size: A Semiparametric Analysis

We use a semiparametric estimator to analyze the relationship between land values and parcel size in a sample of 158 undeveloped parcels in the Portland, Oregon, metropolitan area. The semiparametric estimator combines the benefits of parametric and nonparametric estimation. The value-size relationship is estimated nonparametrically, which permits the function to be linear, convex, and concave in different regions. A simple log-linear parametric relationship is assumed for the rest of the model, which conserves degrees of freedom and simplifies hypothesis testing. Our semiparametric estimates do not reject log-linearity for the value-size relationship.     

Housing Renovations and the Quantile Repeat-Sales Price Index

A median-based quantile estimator suffers less bias from positive outliers, such as unobserved renovations, than a standard mean-based estimator. Quantile repeat-sales estimates for single-family homes in the city of Chicago show nominal price appreciation of 68.9% between 1993 and 2002, substantially smaller than the standard approach's estimate of 77.8%. Omitting observations with building permits reduces the mean and median-based estimates by 4.4 and 1.6 percentage points. The results imply that quality improvements account for much of the rapid rise in house prices, and that a median-based quantile estimator produces a more accurate view of the price performance of a typical house.