Using a Finite Mixture Model of Heterogeneous Households to Delineate Housing Submarkets

By Belasco, Eric; Farmer, Michael C. et al. | The Journal of Real Estate Research, October 1, 2012 | Go to article overview

Using a Finite Mixture Model of Heterogeneous Households to Delineate Housing Submarkets


Belasco, Eric, Farmer, Michael C., Lipscomb, Clifford A., The Journal of Real Estate Research


Abstract

We use a finite mixture model to identify latent submarkets from household demographics that estimates a separate hedonic regression equation for each submarket. The method is a relatively robust empirical tool to extract submarkets from demographic information with far less effort than suspected. This method draws from latent class models to group observations in a straightforward data-driven manner. Additionally, the unique information about each submarket is easily derived and summarized. Results are also shown to more convincingly sort submarkets than a prior study in the same area that used more comprehensive data.

(ProQuest: ... denotes formulae omitted.)

One concern in the application of hedonic pricing methods is the reliable detection of housing submarkets. There are several approaches to approximate submarket delineation. Some rely on a well-partitioned geographic area as a submarket indicator or on the type of domicile (apartment or house) to sort households into submarkets. Yet if the analyst is interested in the economic demand properties of hedonic attributes, submarkets need to differentiate households according to different preferences for hedonic amenities. Two recent articles in this journal illustrate the issue. First, Shultz and Schmitz (2009) note the considerable variation in the price effect of golf courses. Further, the authors note that residential composition is not as homogeneous as they initially thought. Second, Farmer and Lipscomb (2010) use within-neighborhood household diversity to explore the competition for different bundles of housing attributes between different types of households. They found households with distinctly different tastes offering similar prices for some houses in a single neighborhood. These two works illustrate the theoretical challenge facing real estate researchers interested in demand-side analyses: household heterogeneity requires matching diverse household tastes to particular houses. Operationally, we define submarkets as subsets of market agents whose preference rankings over the stock of real estate are similar, meaning that a group (submarket) orders houses from most preferred to least preferred in a similar way that is distinct enough from another group (submarket) that has a different ranking from least preferred to most preferred. Empirically, this can be a very time-consuming process; so other strategies have been developed.

In the absence of very specific household level demographic and attitudinal data, researchers such as Osland (2010) use geographically-weighted regression and spatial Durbin models to account for spatial heterogeneity. The current work follows up on prior tests that elicit and analyze a small set of household information directly from a small survey sample (Lipscomb and Farmer, 2005). That work was robust in submarket identification; but unnecessarily data intensive. The current work introduces a more flexible econometric method to detect submarkets that could plausibly be implemented as it greatly reduces the costs to ascribe much more detail in submarket identification at the individual unit level.

The returns to responsible submarket isolation are not trivial. First, explanatory power to predict housing price variation in the dependent variable has been shown to improve dramatically with submarket delineation (Goodman and Thibodeau, 2007). Also, proper aggregability of households into submarkets, which can be characterized by a representative household for each submarket, is required for consistent attribute coefficient estimation (Palmquist, 2004). Put another way, grouping types for hedonic price analysis into those with similar preference rankings is essential, especially if the goal is to conduct welfare analyses of, say, an environmental attribute change using hedonic price estimates (Sieg, Smith, Banzhaf, and Walsh, 2002; Banzhaf and Walsh, 2008).

In a review of the housing submarket literature, we find no clear consensus on how to delineate housing submarkets. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Using a Finite Mixture Model of Heterogeneous Households to Delineate Housing Submarkets
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.