Pricing Neighborhood Amenities: A Proxy-Based Approach

59 Pages Posted: 26 Sep 2023 Last revised: 14 Nov 2023

See all articles by Alex Bell

Alex Bell

UCLA

Sophie Calder-Wang

University of Pennsylvania - The Wharton School

Shusheng Zhong

Northwestern University

Date Written: November 12, 2023

Abstract

Understanding how housing markets price neighborhood amenities is key to unpacking residential socioeconomic disparities. Yet prior approaches to amenity pricing have suffered from the key confounder of unmeasured neighborhood quality, often leading to wrong-signed estimates. In this paper, we develop a novel proxy-based method that allows us to estimate the price of housing amenities in the midst of unobserved housing quality. Our method shows, as long as one can find at least one relevant "proxy'" variable for housing quality that satisfies conditional independence, the price of amenity can be identified as the ratio of two coefficients. Using detailed migration data, we construct an innovative measure of locational desirability–Geographic PageRank–to use as the proxy variable for quality. We show that this new approach can successfully correct the “wrong-signed” problem in the amenities valuation literature when applied to a standard measure of environmental air quality. The estimated amenity prices are key inputs to evaluating returns on investment in local public goods or environmental policies, including their role in reducing housing disparities.

Keywords: Amenities, Omitted Variable Bias, PageRank

JEL Classification: R32, C39, Q51

Suggested Citation

Bell, Alex and Calder-Wang, Sophie and Zhong, Shusheng, Pricing Neighborhood Amenities: A Proxy-Based Approach (November 12, 2023). Available at SSRN: https://ssrn.com/abstract=4565093 or http://dx.doi.org/10.2139/ssrn.4565093

Alex Bell (Contact Author)

UCLA ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

Sophie Calder-Wang

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Shusheng Zhong

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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