Temporal Dynamics Heterogeneous Sub-Market Property Prices
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Temporal Dynamics Heterogeneous Sub-Market Property Prices
Research in Transportation Economics 90 (2021) 100844
Available online 21 April 2020 0739-8859/© 2020 Elsevier Ltd. All rights reserved.
Subway boosts housing values, for whom: A quasi-experimental analysis
Chuanhao Tian a, b, Ying Peng a, Haizhen Wen b, c, *, Wenze Yue a, Li Fang d
a School of Public Administration, Zhejiang University, Hangzhou, 310058, China b Center for Real Estate Studying, Zhejiang University, Hangzhou, 310058, China c Department of Civil Engineering, Zhejiang University, Hangzhou, 310058, China d Department of Urban and Regional Planning, Florida State University, Tallahassee, 32306, USA
A R T I C L E I N F O
Keywords: Property price Subway Difference-in-differences Temporal dynamics Heterogeneous sub-market
A B S T R A C T
This study investigates the property price premium brought by the opening of a subway to illustrate temporal dynamics and heterogeneous mechanism of property value effects. The estimation of changes caused by subways on property value can aid in assessing the benefits of public transit investments well. On the basis of residential property transaction records in Hangzhou, China in 2009–2013, hedonic models in a difference-in-differences framework are applied to handle certain endogeneity problems of estimation by eliminating unobserved fac- tors.
Results show that treatment groups located within 1000 m of a subway have an average price increase of 444 yuan per m2 from the opening of Line1. High-cost houses constantly gain significant increment and their price premium regress during the research period. However, for their counterparts in low-cost communities, the insignificant price effects are negative for a short time, and then become positive. The generalized results are robust when subway radius is adjusted.
Subway lines play an important role in the process of urbanization. Traffic convenience determines the capacity and attractiveness of a city. Cities with a developed transportation system can cover additional re- sources, and citizens tend to have access to favorable opportunities. Therefore, city governments tend to build subway lines to boost the social and economic development.
However, not all of people in cities need subway lines to the same extent. In accordance with their features and affordability, they can have heterogeneous preference towards subway lines (Yang, Chen, & Le, 2016). Even during a short time period, the preference of a same group of people can be unstable and varies regularly (Agostini & Palmucci, 2010). An investigation of this heterogeneous preference can help policy makers to recognize people in urgent need for subway and optimize the allocation.
A way to study people’s preference towards subway lines is provided by Lancaster (1966). Since there is no explicit market for public infra- structure, the value of subway lines for citizens is embedded into the purchasing costs of housing. People should pay more for a recent subway line. This implied price shows people’s willingness to pay for subway
lines, as well as their deferential preference. A research on this heterogeneous price premium can be a theoretical foundation for land value capture to keep a fiscally sustainable urbanization.
Previous studies utilized a cross-sectional comparison to probe the price effects (Wang. 2017, Teng, Yan, & Zhou, 2014; Cervero & Duncan, 2002). As an outcome of endogeneity, the estimation in those papers is subject to biases (Ko & Cao, 2013; Pagliara & Papa, 2011). Furthermore, the price effects reflecting people’s preference would vary over time and among sub-markets, which has not been investigated at the same time.
The present study aims to fill those gaps and has two contributions to the present understanding of property value effects. On the one hand, this study applies a hedonic price model within a difference-in-differences (DID) framework to control unobserved factors and estimate property value effects precisely. On the other hand, this study elucidates the dynamics of a heterogeneous effect across different sub-markets, trun- cated based on the average property prices of the community. This improvement is helpful in determining the kind of property that has the highest price premium.
To achieve the mentioned goals, this study selects Hangzhou, China as the case study. Hangzhou is a regional central city in China, wit- nessing massive infrastructure construction in recent years. The subway
Corresponding author. Center for Real Estate Studying, Zhejiang University, Hangzhou, 310058, China. E-mail addresses: email@example.com (C. Tian), firstname.lastname@example.org (Y. Peng), email@example.com (H. Wen), firstname.lastname@example.org (W. Yue), email@example.com
Contents lists available at ScienceDirect
Research in Transportation Economics
journal homepage: http://www.elsevier.com/locate/retrec
https://doi.org/10.1016/j.retrec.2020.100844 Received 2 April 2019; Received in revised form 9 February 2020; Accepted 6 April 2020
Research in Transportation Economics 90 (2021) 100844
has sprung up from nothing in the city center as well as the suburb. The change in Hangzhou reveals patterns about the citywide relation be- tween property prices and local transportation operation in developing areas. Consequently, experience in Hangzhou can be a favorable example for urbanizing cities worldwide wherein large-scale subway constructions will occur.
The structure of this paper is as follows. Part 2 reviews previous literature about the property value effect caused by subways and the improvement that requires accurate dynamics. Part 3constructs the main model for estimating the price effects. Part 4 describes the quasi- experimental setting in Hangzhou and the corresponding variables. Part 5 presents the empirical findings on the dynamics of property value effects. The final part provides the discussions and conclusions drawn from this study.
A subway line offers significant advantages for most real estate. Savings in commuting costs and promotion of accessibility are the main advantages (Ahlfeldt, 2013; Alonso, 1964; Hess & Almeida, 2007; Mills, 1967). The superiority can also partly contribute to subways’ image effect (Pan, 2013), that is, a subway line makes neighborhoods appear modern and dynamic. Properties with such advantages have higher values and this relation can be called property value effects caused by the subway on houses.
The added value that a subway line can contribute is typically dis- cussed using the hedonic price model. According to the hedonic price model, the price of a property is derived from its feature rather than the goods itself (Lancaster, 1966). By calculating the price that can be contributed to the distance feature, the extent of property value effects can be estimated. Using this strategy, Bae, Jun, and Park (2003) investigate the effect of a new subway line on property price in Seoul, Korea in four separate years. He finds that property earns a 0.3% price increase from being 100 m near the subway station in the opening year.
Similar negative relations between the distance to subway and property value are found in Beijing, CN (Wang, 2017), Tianjin, CN (Teng et al., 2014), Washington DC, US, Atlanta, US (Cervero & Landis, 1993), Utah, US (Li et al., 2016) and San Diego, US (Cervero & Duncan, 2002).
Several literatures work adopt a binary variable to represent the houses’ prox- imity to the subway (Dai, Bai, & Xu, 2016; Pan, 2013). Properties adjacent to the subway line will exhibit lower values than comparable properties located slightly further away (Pagliara & Papa, 2011; Ko & Cao, 2013).
Influence of environmental negative externalities is verified and accounted for certain insignificant results, such as expected con- gestions and crime (Gatzlaff & Smith, 1993; Landis, Guhathakurta, & Zhang, 1994).
A universal concern of these studies is that the cross-sectional esti- mation might be biased because of endogeneity (Bae et al., 2003; Riekkinen, Hiironen, & Tuominen, 2015; Ko & Cao, 2013). On the one hand, the project placement is an endogenous decision of a local gov- ernment (Donaldson, 2018; McDonald, 2010). It means, the local gov- ernment tends to build the subway in places of low property prices and small population to reduce the cost and develop regional economy (Knaap, Ding, & Hopkins, 2001; Quan, Liu, & Chen, 2006; Yang et al., 2016).
On the other hand, omitted variables which should be included into hedonic model can result in false estimations, such as neighborhood features, including race, neighbors’ income, and educational back- ground (Bayer & Mcmillan, 2007). Additionally, the potential for reaching opportunities by subway (P�aez, Scott, & Morency, 2012), walking impedance (Higgins, 2019), direct distance (Wen, Gui, Tian, Xiao, & Fang, 2018; Xiao, Hui, & Wen, 2019) and commuting time (Alonso, 1964) have been used as the measurement of accessibility. The lack of a definite proxy for distance also leads to omitted variables (Higgins & Kanaroglou, 2016). Furthermore, an increase in property value can be contributed to economic development rather than a sub- way’s opening (Agostini & Palmucci, 2010; Zhang, Liu, & Hang, 2016).
An overlook of the above mentioned problems can lead to insignificant or opposite results.
Several researchers use the DID methods to address endogeneity problems and improve the estimation accuracy of property value effects (Rosenthal, 2003; Black, 1999; Ahlfeldt, 2013; Dub�e, Th�eriault, & Ros- iers, 2013). Heckman (1978) proposes a DID estimator to handle auto-correlation, whereas Ashenfelter and Card (1985) first suggest a DID framework and apply this framework to policy evaluation. The core of this method is the removal of unobserved factors through longitudinal and latitudinal differences.
Out of a similar thinking, Li, Wei, et al. (2016) and Li, Yang, et al. (2016) develop a first-differenced hedonic price framework to compare the property price for move-in date and survey date. Furthermore, Gibbons and Machin (2005) show that the magnitude of quasi-experimental coefficients is significantly larger than those of cross-sectional estimates. Im and Hong (2018) compare a before–after estimate of property prices between homes within and beyond 500m from a subway in Daegu, South Korea. The results illus- trate that the treatment group could earn a premium of US$96.3 per square meter mainly when these homes are within 500 m of the new line and beyond 5 km of the existing lines.
However an empirical gap is that most of them do not reveal varia- tion over time and among different sub-markets simultaneously. The price premium is an implication of the buyers’ willingness to pay for the subway and this preference could be temporally adjusted. See analysis in Dijon, FR (Dub�e, Legros, & Devaux, 2018), Laval, CA, Hangzhou, CN (Wen et al., 2018), and Warsaw, PL (Trojanek & Gluszak, 2017).
Agostini and Palmucci (2010) claim that, if consumers have rational and fluctuant expectations, the future utility will be capitalized into the present price, and the effect of a subway on property price can vary during different times. When information is gradually released following the basic project, the excessive price premium will fall off. Based on this thought, they show that the magnitude of property value effects after opening tends to regress to a conservative status. Pilgram and West (2018) and Diao, Leonard, and Sing (2017) apply similar DID model and also demonstrate that significant price effects diminish over time.
This temporal variation mentioned above can explain some insignificant generalized effects (Gatzlaff & Smith, 1993; Lawhon, Nilsson, Silver, Ernstson, & Lwasa, 2018). On the contrary, Dub�e, Des Rosiers, Th�eriault, and Dib (2011) show that the price premium keeps going up after over 12 years and explain that market needs time to react. Therefore, investigation of temporal variation is crucial to understand the supply of mass transit.
Furthermore, a potential buyer that purchases different kinds of properties may have varying preference or requirements for public goods (Pilgram & West, 2018). The housing market may be segmented into several sub-markets and property prices are not affected evenly by a subway (Devaux, Dub�e, & Apparicio, 2017; Gatzlaff & Smith, 1993; Lawhon et al., 2018).
Therefore, property value effects can vary with features of houses. Because property price can be a perplexing symbol of the owners’ social status (Wen et al., 2018; Zhang & Yi, 2017), and residents tend to sort and live with people sharing similar preference (Bayer & Timmins, 2005), community level features are improved in- dicators for specifying sub-markets. Interestingly, while Gatzlaff and Smith (1993) show that the price premium in high-income communities is larger, Nelson and McCleskey (1990) find an opposite result that property price decrease in high income neighborhoods.
One explanation for the mixed results is a failure to account for heterogeneous attributes of the residence (Bowes & Ihlanfeldt, 2001), including the distance to the city center and the efficiency of connection. Another explanation can be that a generalized estimation in the sub-markets do not consider the temporal variation (Debrezion, Pels, & Rietveld, 2007). So an estimation with combination of temporal variation in sub-markets is important to demonstrate the property value effects and the underlying mechanism.
In summary, previous studies identify price effects of subway con- struction with unobserved factors controlled. Some of them address price adjustment (Agostini & Palmucci, 2010; Diao et al., 2017) and
- Tian et al.
Temporal Dynamics Heterogeneous Sub-Market Property Prices
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