Effects of Location Elements on Home Purchase Prices and Rents in San Francisco Bay Area

Land-market theory emphasizes travel savings as well as access to amenities as the underlying determinants of land prices. A series of hedonic models for implicit estimation of land values, along with explicit estimation of median housing price and monthly contract rent across the San Francisco Bay Area’s census tracts, is investigated. The benefits and valuation of location are assessed by including a variety of travel-based explanatory variables (including average trip characteristics and automobile ownership) as well as measures of local land use patterns—after controlling for various structural characteristics of the dwelling units. In many of the models, lot size is interacted with location attributes to elucidate the direct dependence, if any, of land values on location. The results indicate that changes in accessibility and travel costs affect land and dwelling-unit values in highly statistically and economically significant ways. For example, the coefficient estimates associated with travel-time reductions suggest values of travel-time savings to be roughly $5/hr across all adult-traveler trip types (in 1989 dollars). Furthermore, after controlling for travel costs, a high proximity to industrial land uses and commercial activity depresses land (and dwelling unit) values, often substantially; and simple distance-to-central-business-district variables prove to be effective price predictors. The results also reveal that heteroscedasticity plays an important role in consistent and efficient estimation of model parameters and should thus be accommodated explicitly.