Factors Affecting Spatial Autocorrelation in Residential Property Prices

Daniel Lo, Kwong Wing Chau, Siu Kei Wong, Michael McCord and Martin Haran
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Daniel Lo: Belfast School of Architecture and the Built Environment, Ulster University, Belfast BT15 1ED, UK
Kwong Wing Chau: Ronald Coase Centre for Property Rights Research, HKUrbanLabs, The University of Hong Kong, Hong Kong
Siu Kei Wong: Department of Real Estate and Construction, The University of Hong Kong, Hong Kong
Michael McCord: Belfast School of Architecture and the Built Environment, Ulster University, Belfast BT15 1ED, UK
Martin Haran: Belfast School of Architecture and the Built Environment, Ulster University, Belfast BT15 1ED, UK

Land, 2022, vol. 11, issue 6, 1-16

Abstract: Within housing literature, the presence of spatial autocorrelation (S.A.) in housing prices is typically examined horizontally in a two-dimensional setting. However, in the context of apartment buildings, there is also a vertical component of S.A. for housing units located on different floor levels. This paper therefore explores the determinants of both horizontal and vertical S.A. within residential property prices. First, we posit that S.A. in housing prices is a consequence of the price discovery process of real estate, in which property traders acquire price information from recent market transactions (i.e., comparables) to value a subject property. Furthermore, we contend that the extent to which property traders rely on comparables to determine housing prices is governed by the liquidity and volatility conditions of the market, which in turn affects the magnitude of the S.A. By developing and testing several spatial autoregressive hedonic models using open market transaction data for the Hong Kong residential property market, we find that market liquidity tends to increase both vertical and horizontal S.A., whilst market volatility is more prone to increase vertical S.A. but depress horizontal S.A.

Keywords: spatial autocorrelation; spatial hedonic modelling; residential real estate price; liquidity; volatility; Hong Kong (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2022
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