Neighbourhood Attractiveness and Residential Property Prices; the Impact of Restaurants As Local Consumer Amenities That Foster
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Neighbourhood attractiveness and residential property prices; the impact of restaurants as local consumer amenities that foster encounters Empirical evidence from Amsterdam Anna Wildeboer – 435566 Master thesis Economics and Business Specialization: Urban, Port and Transport Economics Supervisor: drs. Jeroen van Haaren Co reader: prof. dr. Frank van Oort 27 January 2017 Abstract: This paper concerns an empirical exploration of the effect of local restaurants on neighbourhood attractiveness as reflected by residential property prices. Rich restaurant amenity data is created on the basis of consumer generated content on iens.nl (a Dutch restaurant review website) and by using geographical information system techniques. Two methods of spatial data aggregation are considered. A multilevel hedonic pricing methodology is used in combination with a three-staged estimation strategy. The results indicate the presence of substantial neighbourhood price premiums and the importance of the quantitative, qualitative and cuisine diversity aspects of restaurants for local housing prices. Specifically, it is found that only restaurants of the medium to upper segment of the quality spectrum are positively related to residential property prices, although the causality can not be proven on the basis of the cross-sectional dataset. The sensitivity analysis further suggests marginal diminishing returns for the price effect of restaurants and the subordinate importance of cuisine diversity to restaurant presence. Lastly, the partly inconsistent results on the basis of the neighbourhood aggregation and continuous space buffer aggregated restaurant measures indicate the presence of the modifiable areal unit problem. Key words: Urban economics, intraurban, neighbourhood attractiveness, residential property prices, local consumer amenities, restaurants, iens.nl (TripAdvisor), GIS, spatial econometrics, multilevel analysis, hierarchical hedonic modelling, MAUP. - 2 - Table of contents Abstract 1 Table of contents 3 Acknowledgements 4 1. Introduction 5 2. Neighbourhood attractiveness and house prices 2.1 How the neighbourhood affects house prices 6 2.2 The role of amenities 7 2.3 Restaurants as local amenities 9 2.4 Hypotheses 10 3. Data and measures 3.1 Dataset 12 3.2 Restaurant measures 16 4. Methodology and empirical strategy 4.1 Housing price models 19 4.2 Empirical strategy 23 5. Results and robustness 5.1 Exploratory evaluation neighbourhood attractiveness 26 5.2 In-depth analysis restaurant measures 31 5.3 Sensitivity analysis 34 6. Synthesis 6.1 Key findings 37 6.2 Discussion, limitations and future research 39 7. Conclusion 44 References 46 Appendix 1. Technical Appendix 51 Appendix 2. QGIS 56 Appendix 3. Additional tables and figures 59 Appendix 4. Raw STATA output 67 - 3 - Acknowledgements I would like to thank Jeroen van Haaren for his supervision during the last year. You have been of great help since the very start of my thesis process. From the topic selection phase to the final version, you have always been very involved and raised relevant suggestions. I would also like to thank Jan-Jelle Witte, who inspired me from a methodological perspective and was open for question with that regard. In addition, I would like to thank Ortec Finance, and in particular Raymond Havekes, for the provision of the transaction data. Jorne, I can not thank you enough for your great support in every aspect. I am grateful for the help and feedback of Jochem, Renata and Sarah. Lastly, I would like to express my gratitude to my mother and father for their continuous support, both in their own ways. - 4 - 1. Introduction The often cited realtors’ phrase “location, location, location” indicates the generally accepted importance of the location of real estate for its success. Within the residential property market, location refers to neighbourhood attractiveness and accessibility, and property success is expressed by its sales price (Dubin, 1991; Visser & van Dam, 2006). Much research is devoted to the question which factors make up an attractive neighbourhood. However, little attention is given to the presence of a rich variety of services and consumer goods, one of the four critical urban amenities identified by Glaeaser, Kolko and Saiz (2001) in the ‘producer city’ ‘consumer city’ debate. Therefore, it is interesting to consider this class of urban amenities at the lower, local level of analysis. Aditionally, in the light of today’s advanced information and communication technology dominated society, a paradox can be observed where face to face contact and encounter are becoming increasingly important (Storper & Venables, 2004; Vermeulen et al., 2011). A modern interpretation of the well-known realtors’ phrase could therefore be “location, place, encounter” (Stroink, 2013). This research is concerned with local consumer amenities that foster encounters and residential property prices at the neighbourhood level. The characteristic of modern society mentioned above also provides new opportunities for empirical research within the amenities literature. That is, the presence of well-developed GIS (Geographical Information System) packages and publicly available consumer generated content on review websites enable the creation of rich amenity data. A specific consumer amenity that fosters encounters and of which review websites are well- embedded in its industry are restaurants. Therefore, this paper will empirically assess the following central research question: what is the effect of restaurants, as local consumer amenities that foster encounters, on neighbourhood attractiveness as reflected by its residential property prices? Aside from the quantitative aspect of restaurants – i.e. their presence – other aspects are also considered, including their quality and diversity of cuisines. To do so, rich restaurant measures are created on the basis of iens.nl, a Dutch restaurant review website. For this intraurban analysis, Amsterdam is taken as case study. The capital of the Netherlands is known for having the highest residential property prices of the Netherlands, and is also the most restaurant dense city of the country (OIS, 2008). Together with its metropolitan attractiveness and its ‘consumer city’ nature, Amsterdam constitutes an interesting case study for this research. A multilevel hedonic pricing methodology is - 5 - employed that explains residential property prices on the basis of property specific housing attributes (level 1) and neighbourhood specific location attributes (level 2). This technique provides a statistically correct treatment of spatially clustered data, such that the results can be correctly interpreted (Orford, 2000). Furthermore, a specific three-staged estimation strategy is developed that includes an exploratory evaluation of neighbourhood attractiveness, an in-depth analysis on the basis of the self-created restaurant measures, and a sensitivity analysis to assess the robustness of the obtained results. The results reveal the indisputable importance of restaurant presence and quality for residential property prices, in a way that only restaurants of the medium to upper segment of the quality spectrum are positively related to residential property prices. The results for the diversity of cuisines aspect of local restaurants are less unanimous. The rest of the paper proceeds as follows. The next section reviews relevant literature on intraurban house price differentials and the specific role restaurants could play herein. Section 3 describes the data and created restaurant measures. The methodology and estimation strategy are detailed in section 4 and the results are presented in section 5. Section 6 discusses the finding and section 7 concludes the paper. 2. Neighbourhood attractiveness and house prices 2.1 How the neighbourhood affects house prices The value of real estate is influenced by macro, meso and micro factors. Within this distinction macro factors refer to social-demographic, economic and monetary market developments; meso factors refer to neighbourhood and location attributes; and micro factors refer to individual structural attributes of the property (van Gool et al., 2013). Moreover, housing can be perceived as a bundled product that is comprised of a reproducible tangible structure and a non-reproducible plot of land, represented by dwelling-specific and location-specific factors respectively (Wilkinson, 1973). Here, the implicit land value capitalizes the market value of all amenities associated with the home’s location (Davis & Heathcote, 2007). Among these amenities are neighbourhood characteristics and the classic element of urban economic models; accessibility (Dubin, 1992; Cheshire & Sheppard, 1995). Neighbourhood attractiveness thus concerns the meso layer of residential property valuation and is capitalized in the land component of house prices. Within this research the focus will be on the potential house price driving effect of local amenities that reflect neighbourhood attractiveness. - 6 - 2.2 The role of amenities Many empirical studies have aimed to explain intraurban house price differentials caused by variations in amenities (Haurin & Brasington, 1996). Such studies try to identify location- specific factors that influence the attractiveness of an area and thereby the prices of corresponding houses. These amenities can be roughly classified into the four urban critical amenities identified by Glaeser et al. (2001), namely speed or accessibility, good public services, aesthetics and physical setting,