Effect of Location, Neighborhood Quality, and House Quality on Property Values in Memphis
Chris Kamphaus
April 26, 2007
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Abstract
As the cost of living in America climbs, so does the importance of measuring the value of homes and the inputs that affect them. If one can accurately estimate the value of a home, it makes for a better informed consumer, who can make smarter decisions when it comes to purchasing a residence. As the average American spends 62% of annual income on housing costs, it is evident that if misinformed, money can be unnecessarily foregone. This study was designed to examine the differences between housing prices in different geographical locations of Memphis, Tennessee, Hedonic pricing models allow us to get accurate estimates of these factors that affect value. The main objective was to test the effect of dwelling specific inputs on price in three different regions of Memphis, and conduct variable sensitivity analysis to changes in geographic location. This will enable us to better understand which inputs are significant in which areas, and formulate hypothesis as to why these disparities exist. My results suggest that median income, poverty rate, geographic region, and number of stories, have the greatest effect on the price of a home. Further, all dwelling (structure) specific inputs are sensitive to geographic location, but not necessarily to income in all cases.
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1. Introduction
Measuring the value of homes is an important aspect of our society because a house is the most valuable asset for the average ...