Determinants of market performance for local rental housing markets: Theory and evidence
Abstract
This thesis includes three chapters. Chapter 1 analyzes that apartment rents reflect hedonic characteristics such as distance to campus and available amenities. In addition, the rents reflect positive spatial correlations among neighboring apartments. The study is to estimate the effects of these hedonic and spatial characteristics using a data set describing the rental housing market in West Lafayette, Indiana. The hedonic analysis decomposes the rental rate into individual components reflecting the structural, locational, and service characteristics of the rental property. The decomposition highlights the importance of distance from campus. Also important is distance from other apartments. Prior literature suggests that rental housing values are spatially autocorrelated. Therefore, spatial analysis is applied to the base hedonic pricing model to correct for the bias. Results suggest that the value of an apartment increases by 24 percent for each mile that a property is closer to the university campus, all else equal. Second Chapter examines in a duopoly model of spatial competition, we analyze the equilibrium outcomes in a rental market where two firms make quality choices of rental housing in the form of sunk cost in the first stage then they engage in a standard Hotelling spatial competition in the second stage. Our numerical findings suggest that consumer preference for location results in higher rental housing quality. Chapter 3 provides supporting evidence of the adverse effects of rental properties on owner-occupied housing values. To measure the presence of rental properties, we employ different sizes of radial buffers to measure the accumulation of rental properties in residential neighborhoods. Considering the spatial aspect of the data, we employ spatial econometric tools in a hedonic pricing model to test the hypothesis. The study of West Lafayette, Indiana indicates the presence of an approximate 7% reduction in house prices with the addition of each rental unit. This estimated impact is greater than previous studies suggest.
Degree
Ph.D.
Advisors
Martin, Purdue University.
Subject Area
Economics|Economic theory
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