Hedonic housing price indices and secondary employment centers

Abstract

The monocentric model of the city concludes that the price of housing services varies inversely with travel time to the central business district (CBD), holding location-specific amenities constant, because households lower their bid-prices for housing as commutation cost increases. Indeed, residential locational equilibrium in the monocentric city requires a negative price gradient. However, empirical testing has revealed at best lukewarm support for the negative price gradient. 2 For example, estimates of hedonic housing price indices by Berry [3] and Daniels [4] yield statistically significant positive relationships between price and distance or travel time to the CBD, while Kain and Quigley [6], Lapham [7], and Thaler [14] find no statistically significant relationship. The lack of consistent empirical support for a monotonically negative price gradient need not be disturbing if the city violates the assumptions of the monocentric city model. Specifically, secondary employment centers could cause the price gradient from the CBD eventually to become positive and achieve a local maximum in the neighborhood of the secondary center. Failure to control for distance or travel time to secondary centers may explain positive and statistically insignificant negative price gradients that