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Love Thy Neighbor: Income Distribution and Housing Preferences

Author

Listed:
  • Tin Cheuk Leung

    (The Chinese University of Hong Kong)

  • Kwok Ping Tsang

    (Virginia Tech and Hong Kong Institute for Monetary Research)

Abstract
Do homeowners prefer living in an area with a more equal distribution of income? We answer this question by estimating a semi-parametric hedonic pricing model for about 90,000 housing units transacted in Hong Kong between 2005 and 2006. We first identify a hedonic price function by locally regressing the rental price of the housing unit on its intrinsic and neighborhood characteristics, one of which is the Gini coefficient for household income of the constituency area. We then combine the estimates with a log utility function to obtain the heterogeneous preference parameters. Finally, we estimate the joint distribution of the preference parameters and demographics. We find that most homeowners have a strong distaste for inequality in their neighborhood, and the distaste increases with income and goes down with education level. Counterfactual experiments show that reallocating Public Rental Housing by half can increase the welfare of homeowners by about HK$8,000 on average per year, an amount which is equivalent to increasing the housing unit by 20 square feet or reducing the age of the unit by 5 years.

Suggested Citation

  • Tin Cheuk Leung & Kwok Ping Tsang, 2011. "Love Thy Neighbor: Income Distribution and Housing Preferences," Working Papers 372011, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:372011
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    References listed on IDEAS

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    Cited by:

    1. Mateusz Tomal & Marco Helbich, 2023. "A spatial autoregressive geographically weighted quantile regression to explore housing rent determinants in Amsterdam and Warsaw," Environment and Planning B, , vol. 50(3), pages 579-599, March.
    2. Said Benjamin Bonakdar & Michael Roos, 2023. "Dissimilarity effects on house prices: what is the value of similar neighbours?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(1), pages 59-86, January.
    3. Felix Richter, 2014. "Winner Picking in Urban Revitalization Policies: Empirical Evidence from Berlin," ERSA conference papers ersa14p1424, European Regional Science Association.
    4. Bonakdar, Said Benjamin & Roos, Michael W. M., 2021. "Dissimilarity effects on house prices: What is the value of similar neighbours?," Ruhr Economic Papers 894, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    Hedonic Pricing; Housing; Income Inequality;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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