Abstract
Neighbourhood population composition affects the willingness to pay for housing units. This paper utilises a large and rich data set and hedonic regression techniques to disentangle the effect that neighbourhood affluence and presence of inhabitants with an immigrant background have on home prices. Furthermore, we specify an empirical model in a way that also enable us to test for the effect of diversity, both in terms of income levels and of the composition of the immigrant population of a neighbourhood. The hedonic model can be viewed as a variety of an amenity interpretation of the population composition of a neighbourhood. Estimation of effects of population composition is not straightforward as there is good reason to believe that population composition is both endogenously determined together with house prices and that area level omitted variables could bias estimates. This is addressed by lagging the composition measures and by formulating two different models that address these difficulties in different ways. We estimated one random effects model that instruments within neighbourhood variation in population composition and one fixed effects model that control for omitted variables. We find that coefficient estimates are robust across these specifications.
Similar content being viewed by others
Notes
One important implication of this is that you cannot derive strong conclusions on micro-level attitudes and preferences from observations of macro-level observations.
Here we simply use the groupings of country background into 22 categories provided by Statistics Norway. The five largest groups in 2006 was The Nordic group, Other Western Europeans, Other Asians, Pakistanis and Sub-Saharan Africans (not including Somalia).
Admittedly after some experimentation with different specification, this yielded inconclusive results. We did, for example, try out a specification where the effects of the concentration measure were allowed to vary with the level of the AA-variable.
A large share of the Oslo housing stock consists of co-ops, where each housing units is responsible for its own part of a mutual debt. This mutual debt is added to the sales prices.
References
Alesina, A., & La Ferrara, E. (2005). Ethnic diversity and economic performance. Journal of Economic Literature, 43, 762–800.
Bailey, M. J. (1959). Note on the economics of residential zoning and urban renewal. Land Economics, 35(3), 288–292.
Bailey, M. J. (1966). Effects of race and of other demographic factors on the values of single-family homes. Land Economics, 42(2), 215–220.
Bakens, J., Mulder, P., & Nijkamp, P. (2013). Economic impacts of cultural diversity in the Netherlands: Productivity, utility and sorting. Journal of Regional Science, 53, 8–36.
Baumont, C. (2009). Spatial effects of urban public policies on housing values. Papers in Regional Science, 88, 301–326.
Bayer, P., & McMillan, R. (2008). Distinguishing racial preferences in the housing market: Theory and evidence. In A. Baranzini, J. Ramirez, C. Schaerer & P.Thalmann (Eds.), Hedonic methods in housing markets pricing environmental amenities and segregation (pp. 225–244). New York: Springer.
Blom, S., & Henriksen, K. (2008). Levekår blant innvandrere i Norge 2005/2006 (Living conditions among immigrants 2005/2006). SSB Report.
Card, D., Mas, A., & Rothstein, J. (2008). Tipping and the dynamics of segregation. The Quarterly Journal of Economics, 123, 177–218.
Charles, C. Z. (2003). The dynamics of racial residential segregation. Annual Review of Sociology, 29, 167–207.
Cheshire, P., & Sheppard, S. (1998). Estimating the demand for housing, land, and neighbourhood characteristics. Oxford Bulletin of Economics and Statistics, 60, 357–382.
Chin, T., & Chau, K. (2003). A critical review of literature on the hedonic price model. International Journal for Housing Science and Its Applications, 27, 145–165.
Cutler, D. M., Glaeser, E. L., & Vigdor, J. L. (1999). The rise and decline of the American ghetto. Journal of Political Economy, 107, 455–506.
Denton, N. A., & Massey, D. S. (1991). Patterns of neighborhood transition in a multiethnic world: US metropolitan areas, 1970–1980. Demography, 28, 41–63.
DeSilva, S., Pham, A., & Smith, J. (2012). Racial and ethnic price differentials in a small urban housing market. Housing Policy Debate, 22(2), 241–269.
Dubin, R. A., & Goodman, A. C. (1982). Valuation of education and crime neighborhood characteristics through hedonic housing prices. Population and Environment, 5, 166–181.
Farley, R., Schuman, H., Bianchi, S., et al. (1978). “Chocolate city, vanilla suburbs:” Will the trend toward racially separate communities continue? Social Science Research, 7, 319–344.
Fiva, J. H., & Kirkebøen, L. J. (2011). Information shocks and the dynamics of the housing market*. The Scandinavian Journal of Economics, 113, 525–552.
Friedrichs, J., Magnusson Turner, L., & Nordvik, V. (2014). Migrant diversity and segregation in Oslo 1990–2011. Edinburg: ENHR.
Galster, G. (2003). Neighbourhood dynamics and housing markets. In T. O'Sullivan & K. Gibb (Eds.), Housing economics and public policy (Chap. 9, pp. 153–171). Oxford: Blackwell Science.
Galster, G. (2012). Driving Detroit: The quest for respect in the Motor City. Pennsylvania: University of Pennsylvania Press.
Hansen, W. G. (1959). How accessibility shapes land use. Journal of the American Institute of Planners, 25(2), 73–76.
Herath, S. & Maier, G. (2010). The hedonic price method in real estate and housing market research. A review of the literature. Discussion Papers, 2010/03. WU Vienna University of Economics and Business, Vienna.
Hoff, K., & Sen, A. (2005). Homeownership, community interactions, and segregation. American Economic Review, 95(4), 1167–1189.
Li, Q. (2014). Ethnic diversity and neighborhood house prices. Regional Science and Urban Economics, 48, 21–38.
Moye, R. (2014). Neighborhood racial–ethnic change and home value appreciation: evidence from Philadelphia. Urban Geography, 35, 236–263.
Nathan, M. (2015). After Florida: Towards an economics of diversity. European Urban and Regional Studies, 22(1), 3–19.
Osland, L., & Thorsen, I. (2008). Effects on housing prices of urban attraction and labor-market accessibility. Environment and Planning. A, 40, 2490.
Ottaviano, G. I., & Peri, G. (2006). The economic value of cultural diversity: Evidence from US cities. Journal of Economic Geography, 6, 9–44.
Rabe-Hesketh, S., & Skrondal, A. (2008). Multilevel and longitudinal modeling using Stata. College Station, TX: Stata Press.
Rosen, S. (1974). Hedonic prices and implicit markets: Product differentiation in pure competition. The Journal of Political Economy, 82(1), 34–55.
Schelling, T. C. (1971). Dynamic models of segregation†. Journal of Mathematical Sociology, 1, 143–186.
Sethi, R., & Somanathan, R. (2004). Inequality and segregation. Journal of Political Economy, 112, 1296–1321.
Visser, P., Van Dam, F., & Hooimeijer, P. (2008). Residential environment and spatial variation in house prices in the Netherlands. Tijdschrift voor economische en sociale geografie, 99, 348–360.
Wigren, R. (1987). House prices in Sweden: The significance of attributes. Scandinavian Housing and Planning Research, 4, 243–261.
Yinger, J. (1976). Racial prejudice and racial residential segregation in an urban model. Journal of Urban Economics, 3, 383–396.
Yinger, J. (2014). Hedonic estimates of neighborhood ethnic preferences. Public Finance Review,. doi:10.1177/1091142113520562.
Zabel, J. E. (2008). Using hedonic models to measure racial discrimination and prejudice in the US housing market. In A. Baranzini, J. Ramirez, C. Schaerer & P.Thalmann (Eds.), Hedonic methods in housing markets pricing environmental amenities and segregation (pp. 177–201). New York: Springer.
Zhang, J. (2011). Tipping and residential segregation: A unified schelling model. Journal of Regional Science, 51, 167–193.
Acknowledgments
This article is based on research funded by the Norwegian Research Council, Grant 217210/H2. We want to thank Arnstein Gjestland at the Stord/Haugesund University College for the work he has done in arranging the zone-related data found in this paper.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
Fixed effects regression of log home prices, fixed effects at the cluster of tracts level.
Coefficient | SE | |
---|---|---|
Log size single family houses | 0.588 | 0.006** |
Log size flats | 0.644 | 0.006** |
Log size other house types | 0.772 | 0.002** |
Construction year 1940, dummy | Ref | |
Construction year 1940–1950, dummy | 0.003 | 0.005 |
Construction year 1951–1970, dummy | −0.032 | 0.002** |
Construction year 1971–1980, dummy | −0.028 | 0.003** |
Construction year 1981–1990, dummy | 0.001 | 0.003 |
Construction year 1991–2000, dummy | 0.049 | 0.003** |
Construction year 2001–2006, dummy | 0.127 | 0.003** |
Construction year 2007–, dummy | 0.130 | 0.003** |
Owner occupied, dummy | Ref | |
Co-op, dummy | −0.002 | 0.002 |
Share in housing company, dummy | −0.009 | 0.003** |
Flat ground floor, dummy | Ref | |
Flat 1st or second floor, dummy | 0.027 | 0.002** |
Flat 3rd or 4th floor, dummy | 0.052 | 0.002** |
Flat above 4th, dummy | 0.083 | 0.003** |
Sold 2009, dummy | Ref | |
Sold 2010, dummy | 0.083 | 0.002** |
Sold 2011, dummy | 0.182 | 0.002** |
Sold 2012, dummy | 0.251 | 0.002** |
Travel time in minutes from CBD, to the west | −0.002 | 0.0007** |
Travel time in minutes from CBD, to the north-east | −0.007 | 0.001** |
Travel time in minutes from CBD, to the south | −0.0005 | 0.0004 |
Log accessibility | −0.021 | 0.006** |
Block of flats, dummy | Ref | |
Single family house, dummy | 1.00 | 0.032** |
Row- or terraced house, dummy | 0.652 | 0.031** |
Two dwelling houses, dummy | 0.662 | 0.033** |
Share public rental housing, neighbourhood | 0.112 | 0.012** |
Share single family houses, neighbourhood | −0.041 | 0.007** |
Share blocks of flats, neighbourhood | −0.024 | 0.004** |
Share small units | −0.012 | 0.009 |
Share private rental units, neighbourhood | 0.073 | 0.009** |
Share AA, neighbourhood | 0.211 | 0.011** |
Share largest minority, neighbourhood | 0.039 | 0.005** |
Log median male income, neighbourhood | 0.130 | 0.009** |
SD median male income, neighbourhood | 0.0002 | 0.00001** |
Indicator truncated SD, neighbourhood dummy | −0.002 | 0.003 |
Intercept | 10.814 | 0.096 |
R2-within | 0.774 | |
R2-between | 0.674 | |
R2-overall | 0.740 | |
Rho | 0.483 | |
N | 98,568 |
Rights and permissions
About this article
Cite this article
Nordvik, V., Osland, L. Putting a price on your neighbour. J Hous and the Built Environ 32, 157–175 (2017). https://doi.org/10.1007/s10901-016-9506-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10901-016-9506-5