The impact of luxury housing on neighborhood housing prices: an application of the spatial difference-in-differences method
This study investigated the spatial spillover effects of luxury housing during and after construction, in regards to increases in housing prices in neighboring areas as well as the spatial dependence of neighboring housing. This study focused on already completed luxury housing in Taipei, Taiwan. First, the nearest-neighbor matching approach of propensity score matching was used to overcome the problem of data heterogeneity. The difference-in-differences (DD) method and spatial econometrics were used for analysis. The empirical results indicated that the spatial error model had the best goodness of fit. This indicated that housing prices increased by 13.0% during construction of luxury housing nearby. This indicated that housing prices increased by 5.8% after the construction of luxury housing nearby. The empirical results showed that the ongoing and completed construction of luxury housing had spillover effects on housing prices. The effect of ongoing construction of luxury housing was particularly large in scope, indicating its role as a predictor of psychological reaction in the market.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Anglin, P. M., & Gencay, R. (1996). Semiparametric estimation of a hedonic price function. Journal of Applied Econometrics, 11(6), 633–648. https://doi.org/10.1002/(SICI)1099-1255(199611)11:6<633::AID-JAE414>3.0.CO;2-T
Anselin, L., & Lozano-Gracia, N. (2008). Errors in variables and spatial effects in hedonic house price models of ambient air quality. Empirical Economics, 34(1), 5–34.
Baltagi, B. H., & Bresson, G. (2011). Maximum likelihood estimation and Lagrange multiplier tests for panel seemingly unrelated regressions with spatial lag and spatial errors: an application to hedonic housing prices in Paris. Journal of Urban Economics, 69(1), 24–42.
Baltagi, B. H., Bresson, G., & Etienne, J. M. (2015). Hedonic housing prices in Paris: an unbalanced spatial lag pseudo panel model with nested random effects. Journal of Applied Econometrics, 30(3), 509–528.
Basu, S., & Thibodeau, T. G. (1998). Analysis of spatial autocorrelation in house price. Journal of Real Estate Finance and Economics, 17(1), 61–85. https://doi.org/10.1023/A:1007703229507
Bin, O., & Landry, C. E. (2013). Changes in implicit flood risk premiums: empirical evidence from the housing market. Journal of Environmental Economics and Management, 65(3), 361–376. https://doi.org/10.1016/j.jeem.2012.12.002
Boen, F., Vanbeselaere, N., & Feys, J. (2002). Behavioral consequences of fluctuating group success: an internet study of soccer-team fans. Journal of Social Psychology, 142(6), 769–781. https://doi.org/10.1080/00224540209603935
Bourassa, S., Cantoni, E., & Hoesli, M. (2010). Predicting house prices with spatial dependence: a comparison of alternative methods. Journal of Real Estate Research, 32(2), 139–159.
Bourassa, S., Hoesli, M., & Sun, J. (2004). What’s in a view. Environment and Planning, 36(8), 1427–1450.
Bourassa, S., Hoesli, M., & Sun, J. (2005). The price of aesthetic externalities. Journal of Real Estate Literature, 13(2), 165–188.
Boyle, M. A., & Kiel, K. A. (2001). A survey of house price hedonic studies of the impact of environmental externalities. Journal of Real Estate Literature, 9(2), 117–144.
Can, A. (1990). The measurement of neighborhood dynamics in urban house prices. Economic Geography, 66(3), 254–272. https://doi.org/10.2307/143400
Can, A., & Megbolugbe, I. (1997). Spatial dependence and house price index construction. Journal of Real Estate Finance and Economics, 14(1−2), 203–222.
Case, B., Clapp, J., Dubin, R., & Rodriguez, M. (2004). Modeling spatial and temporal housing price patterns: a comparison of four models. Journal of Real Estate Finance and Economics, 29(2), 167–191. https://doi.org/10.1023/B:REAL.0000035309.60607.53
Chalermpong, S., & Wattana, K. (2010). Rent capitalization of access to rail transit stations: spatial hedonic models of office rent in Bangkok. Journal of the Eastern Asia Society for Transportation Studies, 29(8), 926–940. https://doi.org/10.11175/eastpro.2009.0.186.0
Chang, C. O., Yang, C. H., & Hung, Y. R. (2008). Developing, assessment and integration of the exist and presale housing price indexes-the case of Taipei City. Journal of Housing Studies, 17(2), 13–34.
Chen, C. J. (2008). Using geographically weighted regression model on the neighborhood effects of urban park [Unpublished master thesis]. Chinese Culture University, Taipei City, Taiwan.
Chen, F. C. (2011). Research on positioning design of luxury housing – a case study in Taipei Dazhi [Unpublished master thesis]. National Taiwan University of Science and Technology, Taipei City, Taiwan.
Chou, E. Y. (2012). The effects of inside-family vertical relationships on BIRG and CORF [Unpublished master thesis]. National Taipei University of Education, Taipei City, Taiwan.
Cordera, R., Chiarazzo, E., Ottomanelli, M., dell’Olio, L., & Ibeas, A. (2019). The impact of undesirable externalities on residential property values: spatial regressive models and an empirical study, Transport Policy, 80, 177–187.
Dempsey, J. A., & Plantinga, A. J. (2013). How well do urban growth boundaries contain development? Results for Oregon using a difference-in-difference estimator. Regional Science and Urban Economics, 43(6), 996–1007.
Dubé, J., Legros, D., Thériault, M., & Des Rosiers, F. (2014). A spatial difference-in-differences estimator to evaluate the effect of change in public mass transit systems on house prices. Transportation Research Part B: Methodological, 64, 24–40. https://doi.org/10.1016/j.trb.2014.02.007
Dubé, J., Thériault, M., & Des Rosiers, F. (2013). Commuter rail accessibility and house values: the case of the Montreal South Shore, Canada, 1992–2009. Transportation Research Part A:
Policy and Practice, 54, 49–66.
Dubin, R. A. (1998). Predicting house prices using multiple listings data. Journal of Real Estate Finance and Economics, 17(1), 35–48. https://doi.org/10.1023/A:1007751112669
Dubin, R., Pace, R. K., & Thibodeau, T. G. (1999). Spatial autoregression techniques for real estate data. Journal of Real Estate Literature, 17(1), 79–95.
Ellen, I. G., Schill, M. H., Susin, S., & Schwartz, A. E. (2001). Building homes reviving neighborhoods: spillover from subsidized construction of owner-occupied housing in New York City. Journal of Housing Research, 12(2), 185–216.
François, D. R., Marius, T., Yan, K., & Paul, V. (2002). Landscaping and house values: an empirical investigation. Journal of Real Estate Research, 23(1/2), 139–162.
Frew, J., & Judd, G. D. (2003). Estimating the value of apartment buildings. Journal of Real Estate Research, 25(1), 77–86.
Geltner, D. M., Miller, N. G., Clayton, J., & Eichholtz, P. (2010). Commercial real estate analysis and investments. South-Western Pub.
Gibbons, S., Machin, S., & Sliva, O. (2013). Valuing school quality using boundary discontinuities. Journal of Urban Economics, 75, 15–28. https://doi.org/10.1016/j.jue.2012.11.001
Gibbons, S., Overman, H. G., & Patacchini, E. (2015). Spatial methods. In G. Duranton, J. V. Henderson, & W. C. Strange (Eds.), Handbook of regional and urban economics (Vol. 5, Ch. 3, pp. 115–168). https://doi.org/10.1016/B978-0-444-59517-1.00003-9
Glasock, J., Chiuling, L., & Raymond, W. S. (2000). Further evidence on the integration of REIT, bond, and stock returns. Journal of Real Estate Finance and Economics, 20(2), 177–194. https://doi.org/10.1023/A:1007877321475
Heil, O., & Helsen, K. (2001). Toward an understanding of price wars: their nature and how they erupt. International Journal of Research in Marketing, 18(1−2), 83–98. https://doi.org/10.1016/S0167-8116(01)00033-7
Hill, R. C., Griffiths, W. E., & Lim, G. C. (2012). Principles of econometrics (4nd ed.). John Wiley and Sons, Inc.
Ho, Y. F. (2011). Preliminary study on an appraisal model for luxury house via the structural equation model [Unpublished master thesis]. Chang Jung Christian University, Tainan City, Taiwan.
Hong, D. Y., & Lin, C. C. (1999). A study on the impact of subway system and road width on the housing prices of Taipei. Journal of Housing Studies, 8, 47–67.
Hsu, H. J. (2005). The investment project evaluation model for the luxury mansions in Taichung City [Unpublished master thesis]. Chaoyang University of Technology, Taichung City, Taiwan.
Huang, B., Wu, B., & Barry, M. (2010). Geographically and temporally weighted regression for modeling spatio-temporal variation in house prices. International Journal of Geographical Information Science, 24(3), 383–401.
Imbens, G. W. (2015). Matching methods in practice: three examples. The Journal of Human Resources, 50(2), 373–419. https://doi.org/10.3368/jhr.50.2.373
Karl, G. L., & Gareth, T. (2005). Parcel size, location and commercial land values. Journal of Real Estate Research, 27(3), 343–354.
Kavetsos, G. (2012). The impact of the London Olympics announcement on property prices. Urban Studies, 49(7), 1453–1470. https://doi.org/10.1177/0042098011415436
Kuan, P. Y., & Lee, D. Y. (2008). Effects of cram schooling on math performance: a counterfactual analysis. Taiwanese Journal of Sociology, 41, 97–148.
Lee, C. C., Liang, C. M., Tung, C. H., & Lu, Y. J. (2018). The impact of luxury housing on neighborhood housing prices in Taipei City. Asian Economic and Financial Review, 8(10), 1211–1225.
Lee, C. C., Chang, W. L., & Wu, Y. L. (2014). The impact of the crime rate and star schools on house prices: an analysis of spatial dependence. International Journal of Economics and Finance, 6(1), 99–113.
Liang, J. H. (2009). The spillover effect of refurbishment on housing price (Executive Yuan Project Reports No. NSC 98-2410H-034-025). National Science Council.
Lin, C. C., & Ma, Y. C. (2012). An application of Bayesian inference in the real estate market-a case study of Taipei collective housing. Journal of Housing Studies, 21(1), 1–18.
Lin, J. H., & Jou, S. C. (2005). High-income housing and their building blocks in Taipei: a case study of luxurious condominiums in Xinyi center. Journal of Geographical Science, 40, 17–43.
Lin, R. H. (2004). Taipei Xinyi Plan mansions. Architect, 8, 76–83.
Lin, S. J. (2004). The marginal willingness-to-pay of star public elementary and junior high school districts in Taipei City. Journal of Housing Studies, 13(1), 15–34.
Lin, T. Y. (2012). The relation between a monetary policy and housing prices (Research Proposal Report of the National Science Council). Executive Yuan.
Malpezzi, S., Ozanne, L., & Thibodeau, T. G. (1987). Microeconomic estimates of housing depreciation. Land Economics, 63(4), 372–385. https://doi.org/10.2307/3146294
Martins-Filho, C., & Bin, O. (2005). Estimation of hedonic price functions via additive nonparametric regression. Empirical and Economics, 30(1), 99–114.
McLean, A., Horváth, Á., & Kiss, H. J. (2013). How does an increase in energy efficiency affect housing prices? A case study of a renovation. In 20th Annual Conference of the European Real Estate Society (pp. 39–55), Vienna.
McMillen, D. P., & Redfearn, C. L. (2010). Estimation and hypothesis testing for nonparametric hedonic house price functions. Journal of Regional Science, 50(3), 172–733.
Morgan, S. L., & Harding, D. J. (2006). Matching estimators of causal effects: prospects and pitfalls in theory and practice.
Sociological Methods and Research, 35(1), 3–60.
Ooi, J. T. L., & Le, T. T. T. (2013). The spillover effects of infill developments on local housing price. Regional Science and Urban Economics, 43(6), 850–861. https://doi.org/10.1016/j.regsciurbeco.2013.08.002
Osland, L. (2010). An application of spatial econometrics in relation to hedonic house price modeling. Journal of Real Estate Research, 32(3), 289–320.
Pace, R. K., & Gilley, O. (1997). Using the spatial configuration of the data to improve estimation. Journal of Real Estate Finance and Economics, 14(3), 333–340.
Paredes, A. D., & Iturra, R. V. (2013). Substitution bias and the construction of a spatial cost of living index. Papers in Regional Science, 92(1), 103–177.
Rosenbaum, P. R., & Rubin, D. B. (1985). Constructing a control group using multivariate matched sampling methods that incorporate the propensity score. The American Statistician, 39(1), 33–38. https://doi.org/10.2307/2683903
Rubin, D. B. (1979). Using multivariate matched sampling and regression adjustment to control bias in observational studies. Journal of the American Statistical Association, 74(366a), 318–328. https://doi.org/10.1080/01621459.1979.10482513
So, H. M., Tse, R. Y. C., & Ganesan, S. (1997). Estimating the influence of transport on house prices: evidence from Hong Kong. Journal of Property Investment and Finance, 15(1), 40–47. https://doi.org/10.1108/14635789710163793
Song, Y., & Knaap, G. J. (2003). New urbanism and housing values: a disaggregate assessment. Journal of Urban Economics, 54(2), 218–238.
Stuart, E. A., & Rubin, D. B. (2008). Best practices in quasi-experimental designs. In J. W. Osborne (Ed.), Best practices in quantitative methods (pp. 155–176).
Tang, X., & Yao, Y. L. (2012). The impact of staging Olympic Games on real estate price in Beijing. Research in World Economy, 3(1), 45–53. https://doi.org/10.5430/rwe.v3n1p45
Tseng, Y. C. (2014). The capitalization of neighborhood effect the luxury house [Unpublished master thesis]. National Pingtung Institute of Commerce, Pingtung City, Taiwan.
Tsoodle, L. J., Golden, B. B., & Featherstone, A. M. (2006). Factors influencing Kansas agricultural farm land values. Land Economics, 82(1), 124–139. https://doi.org/10.3368/le.82.1.124
Walls, M., Gerarden, T., Palmer, K., & Bak, X. F. (2017). Is energy efficiency capitalized into home prices? Evidence from three US cities. Journal of Environmental Economics and Management, 82, 104–124. https://doi.org/10.1016/j.jeem.2016.11.006
Wang, P. L. (2008). Study on the application of STP theory by construction companies – using luxury house as example [Unpublished master thesis]. Yuan Ze University, Taoyuan City, Taiwan.
Wu, F. (2010). Gated and packaged suburbia: packaging and branding Chinese suburban residential development. Cities, 27(5), 385–396. https://doi.org/10.1016/j.cities.2010.06.003
Wu, Y. Y. (2008). A study of purchasing behavior characteristics on residential luxury mansion market [Unpublished master thesis]. Tamkang University, New Taipei City.
Zang, J. Y. (2001). Taiwan’s Third-generation mansion. Business Times, 33, 60–67.
Zietz, J., Zietz, E. N., & Sirmans, G. S. (2008). Determinants of house prices: a quantile regression approach. Journal of Real Estate Finance and Economics, 37(4), 317–333. https://doi.org/10.1007/s11146-007-9053-7