External Validity of Hedonic Price Estimates: Heterogeneity in the Price Discount Associated with having Black and Hispanic Neighbors Lei Zhang, Tammy Leonard North Dakota State University, University of Dallas lei.zhang.3@ndsu.edu, tleonard@udallas.edu AREUEA; May 29, 2020 Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 1 / 14
Outline Motivation 1 Methods 2 Data 3 Results 4 Conclusions 5 Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 2 / 14
Motivation Housing markets & race Some authors have found price discounts associated with black neighborhoods (Brasington et al., 2015; Myers, 2004; Raymond et. al., 2016) . There remained concerns that studies may suffer from omitted variable bias. Omitted variable bias associated with housing locational characteristics has been addressed using the boundary approach. Bayer et al. 2007 No effect of neighborhood race on home price on average. Study based on the San Francisco Bay Area housing market. Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 3 / 14
Research Questions We apply the boundary approach to a sample of 180 US housing markets to assess the hedonic price of neighborhood racial composition (proportion black and proportion Hispanic). 1 External validity: are the hedonic prices of neighborhood race statistically significant and are results consistent with the omitted variable problem suggested in the literature? 2 To what extent are variations in the estimates across markets explained by across market heterogeneity in supply constraints and consumer preferences? Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 4 / 14
Hedonic Model ln ( P isb ) = β X isb + α N i + δ s + λ b + τ i + ǫ isb ln ( P isb ): natural log of house price X isb : housing characteristics N i : neighborhood block group characteristics including average educational attainment, % of households below poverty, % black households, % Hispanic households δ s : elementary school fixed effect λ b : attendance zone boundary fixed effect τ i : year and month of sale fixed effects Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 5 / 14
Boundary Method (Bayer et al., 2007; Black, 1999; Dhar & Ross, 2012) Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 6 / 14
Hedonic Model 1 Naive regression: All observations in housing market included in model; δ s = λ b = 0 2 Boundary Method: Only observations along school boundary included in model Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 7 / 14
Data Sale price and housing characteristics data from Zillow Transaction and Assessment Dataset (ZTRAX) > 8 million records, but only those in counties with enough observations to conduct boundary analysis were kept. 3.4 million in analysis sample (naive regression); 1.2 million in boundary sample. Block group characteristics came from the American Community Survey 5-year estimates Housing market supply-side charcteristics: land share of housing cost (Census) land supply elasticity (Saiz, 2010) home price appreciation (Annual Freddie Mac House Price Index) Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 8 / 14
Estimated Price Discounts for % Black Percent Black Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y YY Y Y Y YY Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Legend Y Y Y Y Y Y Result was not significant Y . Coefficient Estimate for % Black -5.095 - -0.523 -0.523 - -0.310 -0.310 - -0.167 -0.167 - 0.000 0 135 270 540 810 1,080 Miles 0.000 - 1.702 Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 9 / 14
Estimated Price Discounts for % Hispanic Percent Hispanic Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y YY Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y YY Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Legend Y Y Result was not significant at 95% level Y . Coefficient Estimate for % Hispanic -2.411 - -0.527 -0.527 - -0.260 -0.260 - -0.167 -0.167 - 0.000 0 135 270 540 810 1,080 Miles 0.000 - 1.942 Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 10 / 14
Is the Omitted Variable Bias in the Naive Regression as Expected? 2 2 % Hispanic (Boundary Sample) 1 1 % Black (Boundary Sample) 0 0 -1 -1 -2 -2 -2 -1 0 1 2 -2 -1 0 1 2 % Black (Full Analysis Sample) % Hispanic (Full Analysis Sample) Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 11 / 14
Correlates of Price Discounts for Black Neighborhoods Mean(sd) Variable Range Model 1 Model 2 Model 3 -0.0379 + Land share of housing cost 29.32 (8.90) [16.09 , 53.45] 0.00810 -0.0372* (0.00660) (0.0202) (0.0167) Land supply elasticity 1.93(.77) [.82 , 3.71] 0.207* (0.0799) House Price Appreciation Growth 5.71 (3.08) [.4 , 12] 0.00768 -0.0122 0.0311 (0.0117) (0.0234) (0.0519) GDP Growth 2.73 (.52) [1.2 , 3.7] -0.0614 -0.149 -0.270 (0.0695) (0.193) (0.177) 0.0898 + Latitude 39.02 (4.64) [26.58 , 48.82 ] (0.0333) Longitude -86.46 (14.65) [-122.04 , -79.10] 0.0160 (0.0277) Northeast Census Region .28 0.390 (0.401) South Census Region .33 0.333 (0.305) West Census Region .16 0.0841 (0.501) 28 64 64 N adj. R 2 0.285 0.137 0.184 F 1.952 1.130 1.610 + p < 0.10, * p < 0.05 Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 12 / 14
Conclusions and Discussion External validity of analysis based on a single housing market? Using the boundary method, about a third of housing markets examined produce statistically significant price discounts for minority neighborhoods. Price discounts for black neighborhoods were greatest in housing markets with lower housing supply elasticity and in the south. There were no discernable patterns in the price discounts associated with Hispanic neighborhoods. Possible endogeneity between Hispanic neighborhoods and preferences for Hispanics? Hispanic neighbors may look like white neighbors? Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 13 / 14
Thank you! Lei Zhang, Tammy Leonard (NDSU, UD) Hedonic Price Estimates AREUEA; May 29, 2020 14 / 14
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