An Alternative Spatial Hedonic Estimation Approach

Abstract

Housing studies typically use parcel level distance variables or some variant of the spatialweights matrix approach to incorporate spatial effects into hedonic regression models.In this paper, using very detailed data on household attitudes and parcel attributes,hedonic regression residuals are used in a structural equations framework to check foradditional spatial effects in the hedonic coefficients beyond those captured in the hedonicregression itself. In this way, a "nearest neighbors" approach utilizing parcel leveldistance variables is compared directly to OLS estimation using spatial variables, showingthe relative efficiency of the estimates in the former approach.