Melting Pot or Salad Bowl: Cultural Distance and Housing Investments

71 Pages Posted: 17 Aug 2015 Last revised: 3 Feb 2020

See all articles by Yongheng Deng

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Maggie Rong Hu

Chinese University of Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate); Financial Research Network (FIRN)

Date Written: Feb 2, 2020

Abstract

This paper investigates whether individuals’ cultural background affects their housing investment decisions, drawing inferences from property location choices and transaction prices in Australia. We propose a novel measure of cultural distance for each homebuyer-neighborhood pair, adopting the six-dimension cultural framework in Hofstede (2001). Our measure captures inter-ethnicity similarity and thus measures the cultural similarity of each buyer and neighborhood pair at a more granular level. Utilizing housing transaction data of a culturally diverse city Sydney Australia, we find that buyers are more likely to buy properties in neighborhoods with a shorter cultural distance to their culture of origin and are willing to pay a premium for properties in those locations, consistent with buyers’ preference for cultural proximity. Further, we show that cultural proximity preference is stronger for ethnicities from recent migration waves, particularly Asia. Our findings are generalizable to other regions with ethnic aggregations and offer new insights into the growing literature on culture and household finance as well as the urban economics literature.

Keywords: cultural distance, housing investment, housing price, information friction, home bias

JEL Classification: R00, O18, P22, R21

Suggested Citation

Deng, Yongheng and Hu, Maggie Rong and Lee, Adrian D., Melting Pot or Salad Bowl: Cultural Distance and Housing Investments (Feb 2, 2020). Available at SSRN: https://ssrn.com/abstract=2645533 or http://dx.doi.org/10.2139/ssrn.2645533

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Maggie Rong Hu (Contact Author)

Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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