Putting a price on your neighbour
Peer reviewed, Journal article
Permanent lenke
http://hdl.handle.net/11250/2471713Utgivelsesdato
2016Metadata
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Sammendrag
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 interpre-
tation of the population composition of a neighbourhood. Estimation of effects of pop-
ulation 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 dif-
ficulties 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.