Measuring the effect of greenbelt proximity on apartment rents in Seoul

Abstract

This paper uses spatial hedonic price models to examine how the implicit value of the natural amenity provided by Seoul's greenbelt (GB) is reflected in apartment rents in the Seoul metropolitan area, Korea. We test spatial autocorrelation with six different spatial weight matrices (SWM) in three different spatial models: the spatial lag model, spatial error model, and general spatial model. The spatial error model with 1km distance cutoff SWM performs the best.Findings indicate that apartment rents decrease by 3.83–3.95% with a one-unit decrease in the distance to the nearest GB. The marginal implicit value of decreasing the distance to the nearest GB by 1km, evaluated at the average apartment rent, yields about a $34 drop in monthly rent, ceteris paribus. This finding appears to be related to the centripetal residential location pattern in Seoul, in which people prefer to live in the central city rather than in the suburbs, contrary to the pattern common in North American cities.