Adjacency Neighborhood Effects and Owner-Assessed Home Values

Abstract

Adjacency neighborhood effects such as neighbor interactions or perceived neighborhood quality have been neglected in the housing literature due to a lack of data. We investigate the impact of these effects on the housing wealth perceived by homeowners. Using a national longitudinal survey, we find that perceived neighborhood quality positively impacts owner-assessed home values. However, this effect is driven by homeowners’ assessment of their neighborhoods’ quality relative to other neighborhoods rather than their neighborhoods’ perceived cleanliness or upkeep. Depending on the financial characteristics of homeowners, we also find neighbor interactions and perceived neighborhood safety to have a significant relation with self-assessed home values. Trust and support among neighbors and joint feel of the home and neighborhood on the other hand have no relation with estimated values. While neighborhood quality consistently explains owner-assessed values, home quality only has a relation with value estimates for homeowners with certain financial characteristics. Considering the importance of perceived housing wealth for household financial decisions as well as transaction prices, our findings have implications for policy makers and developers.