Assessing environmental amenities and testing for discrimination in housing markets using hedonic price models

The present thesis applies the property hedonic price model in order to assess the economic value of environmental amenities and discrimination on the Swiss rental markets of Geneva and Zurich. Indeed, economic textbooks teach that differentials in environmental amenities are reflected in rent differentials, as are differentials in dwellings' size and quality. However, for the rents to be affected by environmental quality, the latter has to be perceived by the residents. Therefore, the use of perceived measures of environmental quality is recommended, although in practice most empirical applications use objective measures. In Chapter 2, we compare the use of scientific and perceived noise measures in a hedonic model and test whether the objective measure of road traffic noise is a good instrument to approximate the residents' perception of external noise on the Geneva rental market. We find convergent validity of the two measures for moderate to high noise levels. Then, in Chapter 3 the hedonic model is used to assess the value of natural land use and land use diversity in the urban regions of Geneva and Zurich. We make use of the geographic information system (GIS) to construct precise variables quantifying land uses and their patterns in the neighbourhoods of the buildings. We find that proximity to various environmental amenities as well as their size in the surrounding areas have a statistically significant impact on rents. Moreover, the estimated impacts are relatively similar in the two regions. The GIS capacities are used further in Chapter 4 in which we develop new and original three-dimensional variables for the Geneva rental market in order to quantify the view at the dwelling level. Including these view variables into a hedonic model shows that the view on various environmental amenities has a significant impact on rents. Moreover, dwellings with a view on the famous Geneva Jet d'eau and on the ancient cathedral are rented at a higher price. Finally, in Chapter 5, we account for the market imperfections of the housing markets and show how hedonic price equations could be used to reveal discrimination and prejudice. More specifically, we test whether some categories of households pay more than others for the same quality of housing and whether rents vary with the socio-economic composition of the neighbourhoods. We find evidence of discrimination against foreigners, particularly the less educated ones, on the rental markets of Geneva and Zurich. Moreover, we find that low education households, particularly those of foreign origin, live in dwellings of poorer quality. Then, we allow different household categories to face different marginal prices. We find evidence of discrimination in terms of living conditions based on nationality in the Geneva rental markets, while signs of discrimination in terms of living conditions appear against low education individuals in Zurich.