Externalities, preferences, and urban residential location: Some empirical evidence

Abstract

This study tests the validity of the preference explanation for the pattern of residential urban location based on a study of 2 North American cities and using the Alonso-Muth model. 3 explanations are given for the movement of high-income households to the suburbs from the city core: 1) the existence of important racial and social externalitites 2) the relative real estate tax savings that accrue to suburban residences and 3) the spatial equilibrium theory which was developed by Alonso with Muth. The Alonso-Muth model measures the effect that the bidprice of a house and income of a household have on the distance the residential location will be from the city core. Wheatons 1965 study of a San Francisco Bay area examined the Alonso-Muth model and found that it did not adequately explain the suburban location of higher-income households. The author points out the limitations of Wheatons study and justifies the need for another validation study of the model using household data from Montreal. These results are supportive of the Alonso-Muth model. To examine the validity of preferences as an explanation for the pattern of residential location of income groups a model of arbitrage between distance and housing are developed. Unlike the Wheaton study the major finding of this study is that consumers preferences can significantly determine residential location patterns in at least 1 urban center.