Robust estimation of distance effects and sub‐optimality in mixed use buildings
| Date | 27 September 2011 |
| Published date | 27 September 2011 |
| Pages | 612-629 |
| DOI | https://doi.org/10.1108/14635781111171779 |
| Author | Gunnar Dahlberg,Christian Janssen,Julie Zhou |
| Subject Matter | Property management & built environment |
Robust estimation of distance
effects and sub-optimality in
mixed use buildings
Gunnar Dahlberg
Uppsala University, Uppsala, Sweden
Christian Janssen
Faculty of Business, University of Alberta, Alberta, Canada, and
Julie Zhou
Department of Mathematics and Statistics, University of Victoria,
Victoria, Canada
Abstract
Purpose – The aim of this paper is to investigate whether buyers and sellers appears to take distance
to the capital business district (CBD) into account in their valuation for acquisition or disposition.
Design/methodology/approach – Under a mono-centric model conceptualization, applicable to the
central area of many European cities, location can be represented by distance to the city center. The
effect of several distance measures on selling price is investigated for income properties with mixed
residential and commercial components – geometric distances, driving distance and time, and time by
subway. Exponential and multiplicative models are considered and estimated using a robust
estimation method.
Findings – The findings indicate the mono-centric model to be a useful conceptualization, that
buyers and sellers of income properties do take distance into account, and that a number of buildings
operate under a suboptimal split between residential and commercial components.
Research limitations/implications – In social science even when a model shows good statistical
fit, one will not know if it is correct, but only that it represents observed relationships well. Several
models, however, may fit the data. The authors chose ones used by other researchers in similar
investigations in past decades. Variable definition and measurement are always issues. In the present
case “time by subway” is a mix of walking-waiting-riding and minutes in each activity would not be
equivalent, involving inter-personal comparisons of utility. The variable “effective age” based upon
the assessment concept of “value year” may not fully capture age-related effects on price.
Practical implications – The key implications are that the multiplicative model may well be a
suitable functional form for these types of analyses and that robust methods are important to prevent
outliers in the data from having an undue influence on the estimation.
Originality/value – The authors used robust estimation methods for the price models. The authors
defined and studied a sub-optimality ratio of residential area to commercial area in the mixed use
buildings.
Keywords Real estate valuation, Mixed use incomeproperty, Mono-centric model,Exponential model,
Multiplicativemodel, Location effects, Robustestimation, Optimal ratio, Real estate,Property
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
The authors are grateful to Cecilia Enstro
¨m-O
¨st for the data on travel measures and to two
anonymous reviewers for helpful criticism of the manuscript.
JPIF
29,6
612
Journal of Property Investment &
Finance
Vol. 29 No. 6, 2011
pp. 612-629
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781111171779
1. Introduction
The value of real property is fundamentally dependent upon location, but it is not
apparent how location is to be measured. In an urban setting the distance to the city
center can be used as a proxy for location. The fundamental ideas go back to Ricardo
(1817) and the framework developed by von Thu
¨nen (1826), and modernized for cities
by Alonso (1964), and further developed by Muth (1969) and Mills (1972).
Many cities developed in a ring-like pattern with the central business district (CBD)
as the center of business activities, employment and services and the main destination
to which residents commuted. This became known as the mono-centric model of urban
development. A number of European cities may fit this pattern with respect to the
inner part. An example is Helsinki (Laakso, 1992, 1997). Local sub-centers may exert
some influence, but the principal influence is from the city center. A mono-centric
model application to a wider geographical region in Norway is Osland et al. (2007).
That paper extends the fundamental ideas of the mono-centric model beyond the
immediate area of the CBD. A substantial literature on urban spatial structure has
developed over the past 40 years, including a number of empirical studies utilizing a
variety of statistical methods. An extensive review of the underlying economic theory
is presented by Anas et al. (1998). Recent review articles are Malpezzi (2002) and Yiu
and Tam (2004).
This paper investigates the question of whether the market for major inner city
mixed-use buildings considers distance to the city center in the valuation of the
properties. If distance is considered in a somewhat consistent fashion, whether
explicitly or implicitly, there should be empirical evidence. Absence of a distance effect
would cast doubt on the mono-centric model and indicate that the dominating influence
of the city center was abating. Presence of a distance effect on the other hand would
indicate that the mono-centric model may still be a useful conceptualization. Robust
estimation is used to prevent outliers in the data from having an undue influence on
estimated coefficients. A section of the paper deals with sub-optimality and discusses
adjustments of space in both directions between reside ntial and commercial
components in these mixed use buildings.
We explore a number of different distance measures – geometric measures
(Euclidean distance, and rectilinear distance), vehicle measures (distance by taxi and
time by taxi), and a public transportation measure (total time by subway). The city
center is quite well defined in Stockholm, where major traffic arteries intersect, and all
subway lines connect underground.
Properties sold are regarded as a random sample of all properties of that type in the
area studied. The argument is that the attribute “being sold” is the result of a series of
events, which are essentially random in nature, and have an equal chance of affec ting
any one of the properties in the population. In fact they may be more related to the
circumstances of the owner rather than the property. Hence, those that end up being
sold represent a random subset of all properties and there is no reason to expect them
to exhibit characteristics that differ from those of the whole. This then permits
inferences from the sample to be applied to the population.
Robust estimation methods may be particularly important in the area of real estate
valuation, as there are often outliers in the sample. For residential properties divorce
can be associated with lower selling prices, as the parties have a desire to get the issue
settled rather than holding out for a better price. For commercial properties mergers
Robust
estimation of
distance effects
613
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