Abstract
The aim of the paper is to model small scale neighbourhood in a house price model by implementing the newest methodology in spatial econometrics. A common problem when modelling house prices is that in practice it is seldom possible to obtain all the desired variables. Especially variables capturing the small scale neighbourhood conditions are hard to find. If there are important explanatory variables missing from the model, the omitted variables are spatially autocorrelated and they are correlated with the explanatory variables included in the model, it can be shown that a spatial Durbin model is motivated. In the empirical application on new house price data from Helsinki in Finland, we find the motivation for a spatial Durbin model, we estimate the model and interpret the estimates for the summary measures of impacts. By the analysis we show that the model structure makes it possible to model and find small scale neighbourhood effects, when we know that they exist, but we are lacking proper variables to measure them.
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Notes
Apartments which are located in the same building will have the same xc, yc-coordinates. This causes a technical problem when creating the nearest-neighbours weights matrix. Therefore the last digit of the seven digits xc-coordinate was increased by one, for one of the apartments. For the other apartment at the same location the yc-coordinate was decreased by one. When there was a third apartment at the same location its coordinates were left unchanged. In data used here the problem concerned less than 20 cases of 649.
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Acknowledgments
I sincerely thank my two anonymous referees for the time and effort they have spent on the manuscript. I am most grateful for all comments and suggestions. Financial support from Victoriastiftelsen and Bröderna Lars och Ernst Krogius forskningsfond are gratefully acknowledged.
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Gerkman, L. Empirical spatial econometric modelling of small scale neighbourhood. J Geogr Syst 14, 283–298 (2012). https://doi.org/10.1007/s10109-011-0147-7
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DOI: https://doi.org/10.1007/s10109-011-0147-7