Love thy neighbours or do ethnic neighbourhood qualities matter? Ethnic price differentials in a multi-ethnic housing market

Abstract

New Zealand is a multi-ethnic society that embraces multiculturism. Many studies have examined how the concentration of ethnic minorities affects residential property values within small neighbourhoods. However, very few studies have recognised that characteristics of neighbourhoods other than ethnic concentration may cause such price differentials. We use the repeat-sales model, based on more than 66,000 housing transactions in the most ethnically diverse city in New Zealand, to control the unobserved biases and identify the effects of changes in the concentration of ethnic minorities on house prices over time. We argue that the commonly perceived ethnic housing price discount may not be a consequence of taste-based discrimination but statistical discrimination of prospective homebuyers on neighbourhood qualities. After controlling neighbourhood characteristics, which can be unobserved and are assumed to be unchanged over the course of the four censuses, the effect of the ethnic price differential, either increase or decrease, becomes insignificant on house prices. The statistical discrimination hypothesis is further confirmed using the Special Housing Area (SHA) as an exogenous amenity shock in a spatial-temporal differencing model. Using the conventional hedonic model without considering the neighbourhood qualities can be misleading.

KEYWORDS:

• Racial discrimination
• ethnicity
• housing price differential
• hedonic model
• repeat sales method
• neighbourhood qualities
• confounding bias

Jel classifications:

• R23
• P25
• J14

Acknowledgement

This research was funded by the University of Auckland Business School, Faculty Research Development Fund with grant number 3722103.

The authors whose names are listed immediately above certify that they have no affiliations with or involvement in any organisation or entity with any financial interest (such as honoraria; educational grants; participation in speakers’ bureaus; membership, employment, consultancies, stock ownership, or other equity interest; and expert testimony or patent-licensing arrangements), or non-financial interest (such as personal or professional relationships, affiliations, knowledge or beliefs) in the subject matter or materials discussed in this manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Ethnicity is defined as “the ethnic group or groups a person identifies with or has a sense of belonging to. It is a measure of cultural affiliation (in contrast to race, ancestry, nationality, or citizenship).” Multiple ethnicities is allowed as “ethnicity is self-perceived and a person can belong to more than one ethnic group.” StatsNZ (2018b).

2 Statistics NZ has changed the geographic code classification that has, since 2018, given different boundaries across New Zealand. The original mesh block dataset is reclassified by the new statistical area 1(SA1) dataset. Hence, to match the latest data with the previous data we use the concordance table from the integrated data infrastructure (IDI) to map the mesh block data to the statistical area units.

3 The following outliners are excluded: house price< = $0; floor area < = 10sm; floor area > = 1000sm; no. of bathrooms > = 10; no. of bedrooms > = 10; non-house type housing; non-freehold tenures. The attributes of number of bedrooms, bathrooms, floor area are continuous variables, whereas the attributes of roofing materials, year built (dummy variables of cohorts in decade) and views are dummy variables.

4 Te Puna $\overline{a}$-whare me ng$\overline{a}$ w$\overline{a}$hi $\overline{a}$-whare Motuhake | Housing supply and special housing areas http://www.aucklandcouncil.govt.nz/EN/ratesbuildingproperty/housingsupply/Pages/specialhousingareas.aspx

5 Crime rate is measured by the number of reported offences per year at meshblock level. The crime rate is sourced from the New Zealand Crime and Victims Survey (NZCVS) at policedata.nz. Renters are defined as the population in the dwelling that is not owned and not held in a family trust with weekly rent paid recorded. Public housing is defined as the number of properties owned by Housing New Zealand

Additional information

Funding

This work was supported by Ministry of Business, Innovation and Employment: [Grant Number P2-201906 Affordable Housing for Generations (AHFG)]; The University of Auckland: [Grant Number Faculty Research Development Fund (FRDF) 3722103].