Housing Market Microstructure: What is a Competing House?

Geoffrey K. Turnbull and Velma Zahirovic-Herbert

Journal of Housing Research, 2019, vol. 28, issue 1, 1-22

Abstract: Housing market microstructure focuses on how neighborhood market conditions affect prices and liquidity. In this paper, we test alternative empirical microstructure models in which substitute houses are determined by similar price or size. Specification tests reveal that price-based measures of substitute or competing houses introduce endogeneity bias into the hedonic price function estimates. Non-nested specification tests do not provide strong support for living area-based or number-of-bedrooms-based models. But the results do support using microstructure measures that allow for asymmetric competition and shopping externalities from larger and smaller neighboring houses, a set of measures not yet employed in the literature.

Date: 2019
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DOI: 10.1080/10835547.2019.12092154

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