8 Analysing preferences and value formation in Helsinki with the AHP1 In the chapter I show how locational preferences and value formation may be analysed within the AHP-based expert interview approach outlined in previous chapter. The aim of the exercise is twofold: (1) to quantify qualitative judgment regarding locational preferences and value; (2) to see whether the institutional background of actors is crucial in the formation of preferences (that is, to test for agency relationships). The first aim is the one more oriented to the basic requirements of value modelling: how to quantify fuzzy, nearly unmeasurable elements of the quality concept so as to arrive at a ranking of attributes with regard to their relative importance and, subsequently, to arrive at ranking of alternative locations. The second aim is related to the institutional aspect, whether informal institutions matter, and if so, whether there is any systematic effect (measurable with the AHP) involved. Throughout the chapter the emphasis is in the potential of the method, as opposed to drawing conclusions with respect to the empirical study itself (house prices in the Helsinki metropolitan area). The basic analysis of housing and locational preferences is documented in subsection 8.1. Section 8.2 goes further by analysing locational value and agency effects based on the relative importance of the locational attributes. After the numerical analysis the results are evaluated and commented upon in subsection 8.3. Finally, implications of the results are discussed in subsection 8.4. 8.1 Analysis of housing preferences in the Helsinki metropolitan area This section presents an AHP exercise aimed at quantifying the determinants of residential location quality. First, a brief background of the geographical area under study is introduced and the research design is explained in Subsection 8.1.1. After that the processes involved are explained in Subsection 8.1.2. Finally, the results are pre- sented in subsections 8.1.3 and 8.1.4. 8.1.1 Selection of respondents and market segments According to Reen (1999) the major institutional structures of the Finnish urban housing markets are: C the owners of dwellings (owner-occ. and rental) are still mainly private persons C old ARAVA-housing2 is converted into ‘hard currency’ rental housing C the value has a market base where construction cost principles no longer apply. The assumption is that in the end, the demand steers the value formation process, when the investment value and the use value of a given house or site are assumed to be equal. However, the chosen approach allows the use value to include some non-monetary components (see e.g. Dent & Temple 1998). This involves aspects that are far from 150 objective and clear. If there are different mutually ambiguous interests attached to land and property, the exact definition of ‘value’ becomes unclear. Depending on the respondents there may be different values and consequently different answers. The question arises to what extent the valuation of attributes depends on the background and characteristics of the respondents. The respondents had to meet two criteria: (1) a pursuit as stakeholder based on professional responsibility in business or administration; (2) a deep local knowledge of the housing market segments and quality differences between neighbourhoods gained by professional experience. (The names of the respondents are not presented for legal reasons.) According to Reen (1998) stakeholders or experts with deep knowledge can be classified in order as follows: (1) In ownership markets, the real estate agents and assessors have the best knowledge. For them owning a house is basically considered a housing service, so that their elicitation is closer to the dwellers’ than to the builders’. As far as the participants in this study are concerned, one cannot talk about a unified group of agents: S most of them are certified assessors (a recent system of authorisation) S one appraisal firm with analytic perspective S some are newcomers representing small estate agency firms (‘fresh agents’). (2) In rental markets, there are rental agents. They are, however, relatively rare in Helsinki (even though their number has increased after a favourable change in law in 1995). (3) Building companies in the owner occupied sector. They either invest in estates or build on land they themselves own. (4) A few large owners of rental houses. Since the ‘marketising of the Finnish housing sector’ (e.g. Tanninen 1998) the interest is similar to that of group (3). (5) Other owners: municipality land companies (the only type of agent from this group included into this sample), insurance companies, industrial enterprises, and public hou- sing associations. (6) Managers of private housing corporations, who serveg the needs of the owner- occupiers. (7) Planners, actually planning officers in Helsinki. Two government bodies were selected: Helsinki metropolitan area Council – YTV and The City of Helsinki, Town Planning Office. (8) Other experts: research scientists from the Technical Research Centre of Finland, 151 dealing with tax assessments and econometric research and working under a consultancy relationship for various private and public institutions; researchers from City of Helsinki, Urban Facts, possessing general knowledge of housing in Helsinki. To summarise the grouping of respondents, they represent either transaction related services (estate agents and assessors), land and property ownership (builders, municipality as a landowner and other investors), and more community-oriented interest groups (planners, rental agents and other administrators). The question is whose agents values are at stake and with respect to which factor is the relative importance to be determined? The problem was solved by making explicit to the respondents that when choosing the preferred combination of characteristics, the relevant preferences must always be checked against preferences of the consumer, the would-be end user in question. In Figure 8.1 the various interest groups are put on a scale from the investor to the user with respect to their positions. Figure 8.1 Simplified illustration of the range of differences in participants’ interests. (When moving along the line to the right, the role of the consumer preferences increases.) It is obviously problematic to illustrate the conceptualised positions of all the relevant actors in a one-dimensional diagram. It is assumed here that planners, housing managers and rental agents are more concerned about the end-user’s needs than the other professional affiliations. One could however argue that the rental agent should be situated close to the owners, because s/he takes care of the yields on their property. In any case, some oversimplifications had to be made to be able to investigate the preference formation issue further within the AHP-based expert interview approach. Actually, the methodology chosen is closer to a controlled experiment than to a survey (cf. Diaz 1998). Some appliers of the AHP-method (Nevalainen 1998; Pöyhönen 1998b) advise against following principles of statistical sampling, since the method is not well suited to large scale surveys. One obtains the necessary covering with fewer observations, with around 20 interviewees at the most. Given that the interviewees are selected with care the answers tend to replicate same patterns after only a few interviews. 152 Therefore, the number of respondents was kept small. It is interesting to note that of the AHP-applications discussed only the Geneva -studies (Laakso et al. 1995; Bender et al. 1997,1999) use a statistical aspect in their selection of participants. For the aggregation of the elicitation (residential profiles) the Perth -formula was chosen (see section 7.2). Not only the choice of respondents matter, also possible market segments have to be taken in consideration. Successful use of the AHP requires a homogenous context (Nevalainen 1998). The problem can be avoided if the AHP is applied to a market segment rather than to the market as a whole. Two segments were chosen: (1) multi- storey housing in suburban Helsinki metropolitan area (henceforth: Helsinki); (2) single- family housing, including both terraced, detached and semi-detached houses in suburban Helsinki. 8.1.2 The method and the models The composition of hedonic price models and their various extensions was discussed throughout chapters 2 and 3. Although the literature does not reach consensus regarding the exact list of variables, in general three basic factors determine residential location: (1) distance to CBD, (2) the scenery and similar attractive features such as ‘pleasantness’ or ‘enjoyment’, (3) the social rating. Obviously, some factors are more capable of objective measurement than others and making the two latter categories satisfactorily operational might be impossible. In fact, none of a number of extensive Finnish studies in property valuation from Kanerva (1974) to Myhrberg (1989) cited in Haulos (1989) contained reliable estimates for the locational characteristics – other than few variables which captured internal distances within the neighbourhood. Each interest group considers these factors in one way or another, whether it is a building company or a tenant. Moreover, we assume that our target consumer belongs to that part of the population with purchasing power which only searches for good quality, not cheap or subsidised segments. According to Saaty (1990) the value tree has to be a thorough but at the