Determinants of Vacancy Rates in the Sao Paulo's Metropolitan Area: A Spatial Approach

Abstract

Sao Paulo's metropolitan area is one of the largest urban spaces in the world. As it happens with any other large metropolitan area, understanding its structure, problems and dynamics is not a simple task. The structure of cities has been studied by urban economics ever since von Thunen's land use theory was adapted to urban contexts. Research on property and housing markets has followed a related but different approach. On the one hand, housing markets have been modelled with emphasis on the specific features of properties such as durability, heterogeneity, and construction costs. On the other, focusing on the supply and demand adjusting mechanisms and considering properties as assets, research on real estate finance has been developing and applying a variety of valuation methods. These three areas of investigation have not always been connected in a systematic manner. Yet, we argue that there is a case for integrating them to address a number of urban issues due to their intrinsic spatial dimension. This paper attempts to contribute to this integrated approach through an empirical analysis of the determinants of residential vacancy rates in Sao Paulo's metropolitan area. We combine standard spatial econometric methods with hedonic modelling to analyse a data cross-section at district level for the year 2000. Our results suggest that there are two main groups of determinants: One related to local characteristics of housing markets and another constituted by individual building features.