Conceptual and operational issues in incorporating segregation measurements in hedonic price modeling

Abstract

The essence of hedonic price modeling is to establish the relationship between housing prices and housing attributes. Typically, housing attributes refer to structural characteristics of the unit. However, it is obvious that the price of a house is not just determined by its structural attributes, but also attributes of the neighborhood in which the unit is located. Neighborhood attributes can be physical properties of the neighborhood, such as street condition and proximity of employment centers, or environmental characteristics such as the types of vegetative cover. Another set of neighborhood attributes is associated with the demographic and socioeconomic characteristics of the residents. The intensity and nature of interaction between the population and the physical environment can also be regarded as neighborhood characteristics. The overall objective of this chapter is to evaluate how segregation is relevant in housing price determination and to suggest effective segregation measures that can be incorporated into housing price modeling. In other words, this chapter intends to provide insights on capturing neighborhood population characteristics as inputs to hedonic models. The objective is accomplished through the discussions of different facets of segregation at the conceptual level and various issues in using segregation measures at the operational level. I will first offer taxonomies of segregation based upon several defining dimensions. Then I will discuss the concepts of segregation in residential space in reference to housing price determination. Segregation is generally regarded as undesirable, but specific impacts (positive or negative) of segregation on a neighborhood and the processes have not been concretely addressed. There are also many types of segregation and only those that are relevant to housing price modeling will be discussed. Then I will address several segregation measurement issues that are relevant to housing price modeling in general. The issue of geographical scale and the nature of segregation will be the major emphases. Some measures appropriate for hedonic modeling will be reviewed.