Estimating the Value of Proximity to Water, When Ceteris Really Is Paribus

Real Estate Economics, Forthcoming

Posted: 20 Jun 2015

See all articles by Jan Rouwendal

Jan Rouwendal

VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Or Levkovich

VU University Amsterdam - Department of Spatial Economics

Ramona van Marwijk

Kadaster

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Date Written: April 27, 2015

Abstract

Proximity to water is appreciated by households. Hedonic analyses that try to measure the value of this amenity are potentially biased by omitted variables since locations close to water may be selected by households with higher incomes who construct more luxury houses. Since it is difficult to observe all the relevant characteristics, the coefficient for proximity to water may be biased upwards. We circumvent this problem by exploiting a specific characteristic of the Dutch system of planned residential development: often a number of exactly similar houses are constructed close to each other. By comparing the values of such identical houses, we can measure the effect of proximity to water under almost ideal circumstances. Introduction of these fixed effects lowers the estimated impact of this amenity, thereby confirming the conjectured presence of an omitted variable bias.

Keywords: house prices, amenities, hedonic analysis, fixed effect

Suggested Citation

Rouwendal, Jan and Levkovich, Or and van Marwijk, Ramona, Estimating the Value of Proximity to Water, When Ceteris Really Is Paribus (April 27, 2015). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2620406

Jan Rouwendal

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Or Levkovich (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Ramona Van Marwijk

Kadaster ( email )

Netherlands

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