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Housing Market Segmentation and Sorting

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Regatta C
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Jenny Schuetz, Brookings Institution

What Explains Neighborhood Sorting by Income and Race?

Dionissi Aliprantis
,
Federal Reserve Bank of Cleveland
Daniel Carroll
,
Federal Reserve Bank of Cleveland
Eric Young
,
University of Virginia

Abstract

Why do high-income black households live in neighborhoods with characteristics similar to those of low-income white households? We find that neighborhood sorting by income and race cannot be explained by financial constraints: High-income, high-wealth black households live in similar-quality neighborhoods as low-income, low-wealth white households. Instead, we show that the racial composition of neighborhoods drives neighborhood sorting. Black households sorting into black neighborhoods explains the racial gap in neighborhood quality at all income levels. Absent high-quality black neighborhoods in their metro, black households sort into black neighborhoods rather than high-quality ones.

Heterogeneous Households and Market Segmentation in a Hedonic Framework

Steven Bourassa
,
Florida Atlantic University
Martijn Droes
,
University of Amsterdam
Martin Hoesli
,
University of Geneva

Abstract

This paper explores Rosen’s (1974) suggestion that within the hedonic framework there are natural tendencies toward market segmentation. We show that market segmentation can be estimated on the basis of an augmented hedonic model in which marginal prices are separated by household characteristics into different classes. The classes can either be exogenously defined or endogenously determined based on an unsupervised machine learning algorithm or a latent class formulation. We illustrate the usefulness of these methods using American Housing Survey data for Louisville and show that there are distinct housing market segments within the Louisville metropolitan area based on income and family structure.

Household Sorting in an Ancient Setting

Jonathan Halket
,
Texas A&M University
Abhimanyu Gupta
,
University of Essex

Abstract

We use archaeological data from two different ancient settlements of different historical eras on a Greek island to construct novel measures of wealth. Using these, we show that the wealthy tended to live closer to the center of the settlements. We build a monocentric city model with heterogeneous households, luxury goods and endogenous labor choices that is consistent with the rich living closer to the center. This result holds when transportation costs within the model are predominately time costs, as they mostly were in ancient history.

Immigration and the Pursuit of Amenities

David Albouy
,
University of Illinois
Heepyung Cho
,
University of Illinois
Mariya Shappo
,
University of Illinois

Abstract

Immigrants to the United States live disproportionately in metropolitan areas where nominal wages are high, but real wages are low. This sorting behavior may be due to preferences toward certain quality-of-life amenities. Relative to U.S.-born inter-state migrants, immigrants accept lower real wages to locate in cities that are coastal, larger, and offer deeper immigrant networks. They sort towards cities that are hillier and also larger and networked. Immigrants come more from coastal, cloudy, and safer countries -- conditional on income and distance. They choose cities that resemble their origin in terms of winter temperature, safety, and coastal proximity.
Discussant(s)
Judith Ricks
,
Consumer Financial Protection Bureau (CFPB)
Amanda Ross
,
University of Alabama-Birmingham
Marcus Casey
,
University of Illinois-Chicago
Yijiao Liu
,
State University of New York-Stony Brook
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
  • J1 - Demographic Economics