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

2. 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

3. Ethnic segregation in a Dutch context

4. NativeNon-westernWesternTotal Homeownership59.2022.6542.7954.53 Social rental30.5966.3242.8934.84 Private rental8.259.0212.408.67 Median indoor floor space (m 2 )127.3986.37109.94122.23 Average net rent (€/month)368.97329.87386.33364.80 Average WOZ dwelling price (€ ‘000)211.91149.32193.36204.70 Big City (Randstad)11.5142.8421.6915.26 Other municipalities88.4957.1678.3184.74

5. 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

6. 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

7. 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

8. 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

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

10. 1 st semiparametric model Log(Price j ) = β 0,j + β 1,j* YEAR 1945-1959 + β 2,j* YEAR 1960-1969 + β 3,j* YEAR 1970-1979 + β 4,j* YEAR 1980-1989 + β 5,j* YEAR 1990-1999 + β 6,j* YEAR after2000 + 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

11. Log WOZ (indexed)dfLin. Coef.Std. ErrorzGainP>Gain 1945-19591-0.04660.00656-7.104.. 1960-19691-0.05760.00591-9.754.. 1970-19791-0.00440.00538-0.821.. 1980-198910.039250.005646.956.. 1990-200010.165090.0055229.913.. after 200010.182980.0068726.624.. log rooms4.0040.256690.0069836.78541.170 log indoor size3.9990.125260.0039331.974.1390 log outdoor size3.9890.071080.0016443.231447.330 detached house10.267420.0058945.404.. semidetached10.047120.0044210.663.. apartment1-0.08940.00792-11.28.. single floor10.048740.0045210.774.. garden1-0.00050.00662-0.07.. balcony10.078070.0039219.94.. carpark10.139550.0039535.371.. central heating10.062570.0054411.502.. distance21-0.02490.00503-4.955.. distance31-0.03210.00603-5.324.. distance41-0.00990.00567-1.738.. distance51-0.01910.00776-2.459.. log mean WOZ4.0060.272450.0055948.765515.0690 proportion non-western10.003-0.00370.00026-14.128106.1210 log urbanity3.995-0.13090.0049-26.736105.0620 big city10.06330.007927.99..

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

13. Partial residual plots show nonlinearity

14. 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

15. 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)

16. MWTP 10% to 35% non-westernCoef.Std. Err.tP>t[95% Conf.Interval] Family with kids0.07450.72960.10000.9190-1.35561.5045 # household members-1.48390.3020-4.91000.0000-2.0759-0.8920 Western minority-19.11461.3957-13.70000.0000-21.8504-16.3789 Native Dutch-21.88831.2169-17.99000.0000-24.2734-19.5031 < Social minimum-1.64831.4538-1.13000.2570-4.49791.2012 1-1.5 Model income-0.43390.8502-0.51000.6100-2.10031.2326 1.5-2 Modal income-1.30460.8411-1.55000.1210-2.95320.3440 > 2 Modal income-2.11190.8179-2.58000.0100-3.7150-0.5087 Log age of household head-7.30570.7661-9.54000.0000-8.8072-5.8042 Tertiary education-0.27260.4382-0.62000.5340-1.13150.5863 Non-western partner24.51941.248319.64000.000022.072826.9661 constant60.56323.470217.45000.000053.761367.3651 Adj R-squared0.0817

17. MWTP 0% to 3% non-westernCoef.Std. Err.tP>t[95% Conf.Interval] Family with kids-0.00890.0876-0.10000.9190-0.18050.1627 # household members0.17810.03624.91000.00000.10700.2491 Western minority2.29380.167513.70000.00001.96552.6220 Native Dutch2.62660.146017.99000.00002.34042.9128 < Social minimum0.19780.17451.13000.2570-0.14410.5398 1-1.5 Model income0.05210.10200.51000.6100-0.14790.2520 1.5-2 Modal income0.15660.10091.55000.1210-0.04130.3544 > 2 Modal income0.25340.09812.58000.01000.06100.4458 Log age of household head0.87670.09199.54000.00000.69651.0569 Tertiary education0.03270.05260.62000.5340-0.07040.1358 Non-western partner-2.94230.1498-19.64000.0000-3.2359-2.6487 constant-7.26760.4164-17.45000.0000-8.0838-6.4514 Adj R-squared0.0817

18. 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

19. Thank you for your attention! Comments/suggestions welcome: cheng.ong@maastrichtuniversity.nl