A simulation model of home improvement with neighborhood spillover

Abstract

This paper develops a simulation model of home improvement with neighborhood spillover. The goal is to explore how the household decisions between home improvement and moving shape urban land development and housing markets, and the role of neighborhood spillover. The model is implemented based on a monocentric city framework. The existence of neighborhood spillover effects slows down the pace of urban land development, while it also significantly increases average household duration of residence and amount of home improvement investment. In practice, the neighborhood spillover effects can be considered as a form of social capital which connects homeownership and neighborhood quality. Based on the simulation results and sensitivity analysis of key policy relevant parameters (social interaction strength, neighborhood size, transportation cost), the paper further explores implications for public policymaking related to transportation, housing markets, and land use. The dynamic simulation tool developed in this paper can also be found useful in other land use, urban and regional modeling.