Working paper abstract

#2013-061

Ethnic segregation and heterogeneous preferences of homeowners for housing and neighbourhood characteristics. Evidence from the Netherlands

Cheng Boon Ong & Kristofde Witte

This paper examines ethnically differentiated preferences for neighbourhood ethnic composition among homeowners in the Netherlands. Borrowing from price hedonic theory, it tests a fully nonparametric empirical model of housing choice. We exploit rich neighbourhood-level administrative data linked to the 2009 'Dutch Housing and Living Survey'. The nonparametric analysis proceeds in two steps. First, housing prices are decomposed into attribute-specific 'implicit prices'. These price hedonic estimates indicate a significant negative effect of the percentage of non-western minority residents in a neighbourhood on housing prices. For the second step and using the recovered household preference parameters, the marginal willingness to pay for an increase in non-western minority neighbours is estimated. Our model predicts an average decrease in dwelling price of €697 for every 10 per cent increase in non-western neighbours. The paper finds evidence of assimilation with some homeowners of non-western migrant background having a negative willingness to pay for living next to more co-ethnic neighbours.

Keywords: demand estimation, hedonic price, heterogeneous preference, nonparametric, generalized kernel function, ethnic segregation

JEL Classification: R20, R21, R23, R31, R32