Explaining Residential Ethnic Segregation in the Netherlands using Price Hedonics Cheng Boon Ong HSA-ECS Workshop 15 April 2010

Presentation Outline 1.Context 2.Price Hedonic Method 3.Data and specification 4.1 st stage semiparametric 5.3 rd stage: heterogeneous preference for neighbourhood ethnic composition

Ethnic segregation in a Dutch context

NativeNon-westernWesternTotal Homeownership Social rental Private rental Median indoor floor space (m 2 ) Average net rent (€/month) Average WOZ dwelling price (€ ‘000) Big City (Randstad) Other municipalities

Why homeowners and segregation? Non-price mechanism drives social rented sector (e.g. waiting list) Increase in homeowner sector at the expense of social rented sector (mortage tax relief, privatisation of housing associations, …) This line of research is relatively unexplored for the Netherlands

Price Hedonic Method Real estate valuation, transaction data Microeconomic consumer choice theory (utility, budget constraint, …) Housing as a bundle of separable attributes with unique subutility components and implicit prices for each attribute (Lancaster 1966, Rosen 1974) Bajari and Kahn (2005): heterogeneous preferences

Bajari and Kahn (2005) three-stage 1st stage: estimate implicit prices for each housing attribute (semiparametric GAM) 2nd stage: recover household preference parameter with 1 st stage coefficients and observed housing attributes 3rd stage: estimate joint distribution of preferences and household characteristics

Utility of household i consuming dwelling j with housing attributes, k: u ij = u(x j, ξ j, c) = β i,k ln(x j ) + β i,k x j + β i,j ln(ξ j ) + c Household preference for attribute k, β i,k = x j*,k (∂p(x j*, ξ j* )/∂x j,k ) …as a function of household characteristics, z β i,k = f k (z i ) + ε i,k

Dutch Housing Survey (WoON 2006) Nationally representative sample > 60,000 respondents Household characteristics, housing and neighbourhood conditions, mobility Linked to administrative (postcode) neighbourhood data

1 st semiparametric model Log(Price j ) = β 0,j + β 1,j* YEAR β 2,j* YEAR β 3,j* YEAR β 4,j* YEAR β 5,j* YEAR β 6,j* YEAR after β 7,j* s(log(ROOMS)) + β 8,j* s(log(INDOORSIZE)) + β 9, j* s(log(OUTDOORSIZE)) + β 10, j* ONEFLOOR + β 11, j* GARDEN + β 12, j* BALCONY + β 13, j* CARPARK + β 14, j* CENTRALHEAT + β 15, j* DETACHED + β 16, j* SEMIDETACH + β 17, j* APARTMENT + β 18, j* DISTANCETOWN 15minwalk + β 19, j* DISTANCETOWN withintown + β 20, j* DISTANCETOWN surrounding + β 21, j* DISTANCETOWN countryside + β 22, j* s(log(MEANINCOME)) + β 23, j* s(log(NONWESTERN)) + β 24, j* s(log(URBANITY)) + β 25, j* BIGCITY

Log WOZ (indexed)dfLin. Coef.Std. ErrorzGainP>Gain after log rooms log indoor size log outdoor size detached house semidetached apartment single floor garden balcony carpark central heating distance distance distance distance log mean WOZ proportion non-western log urbanity big city

‘Downhill’ once proportion of non-western minorities exceeds 3.7%

Partial residual plots show nonlinearity

3rd stage: OLS MWTP i,nonwestern = β 0,i + β 1,i FamilyKid + β 2,i HouseholdSize + β 3,i NativeDutchHead + β 4,i WesternHead + β 5,i NonWesternPartner + β 6,i LowIncome + β 7,i 1to1.5ModalIncome + β 8,i 1.5to2ModalIncome + β 9,i 2ModalhighIncome + β 10,i log(Age) + β 11,i TertiaryEducated

Calculate Marginal Willingness to Pay MWTP nonwestern10-35%increase,i = β i,k* (10) - β i,k* (35) MWTPnonwestern0-3%increase,i = β i,k* (3) - β i,k* (0)

MWTP 10% to 35% non-westernCoef.Std. Err.tP>t[95% Conf.Interval] Family with kids # household members Western minority Native Dutch < Social minimum Model income Modal income > 2 Modal income Log age of household head Tertiary education Non-western partner constant Adj R-squared0.0817

MWTP 0% to 3% non-westernCoef.Std. Err.tP>t[95% Conf.Interval] Family with kids # household members Western minority Native Dutch < Social minimum Model income Modal income > 2 Modal income Log age of household head Tertiary education Non-western partner constant Adj R-squared0.0817

Some preliminary conclusions Nonlinear relationship between proportion of non-western households in neighbourhood and dwelling price Different demand across ethnicity of household for non-western neighbours – some positive “taste” for non- western neighbours up to a certain level and then the “distaste” sets in

Thank you for your attention! Comments/suggestions welcome: