Alonso Meets Hansen: Rent Determinants and Threshold Effects

Abstract

The distance to the closest Central Business District has been, since Alonso theoretical contribution, one of the main variables used to explain housing prices. Recent studies made in the context of modern polycentric cities, with complex transit systems and heterogeneous social realities, have underline that other factors can also contribute to explain different housing prices. In this work, we evaluate if distance is still a factor that explains housing prices in the context of the Lisbon Metropolitan Area while also highlighting other explanatory factors. Also, combining Alonso’s proposal with Hansen econometric techniques, we show that in the Lisbon area there are different segments and as we step away from the center, the price constantly declines but at a slowest rate. The results also highlight how physical aspects of the dwelling, location variables or socio-economic characteristics of the neighborhood matter in the definition of housing prices. Finally, this work concludes by discussing how this method can be improved and contribute for better public policy, namely in terms of zoning or property taxes differentiation.