Are new entrants to the residential property market informationally disadvantaged?

Abstract

This paper sets out to test whether, as a consequence of being informationally disadvantaged, new entrants to residential property markets pay significantly higher prices for a hypothetical standardized property. The paper analyses data on house sales in Glasgow between April 1991 and March 1992. The transactions data are subdivided into mutually exclusive groups of households and the prices paid are examined. The prices paid by first time buyers are compared to the prices paid by repeat purchasers, and the prices paid by in-migrants are compared with those paid by intracity movers. Hedonic house price functions are estimated for each subgroup in order to standardize for differences in the physical, neighbourhood and locational characteristics of the dwellings purchased. The equations are then tested for parameter equality, in order to determine whether the implicit prices paid by new entrants and existing owners are different. The main conclusion is that, on the basis of the subgroups examined, there is no evidence that new entrants pay more for housing as a result of informational disadvantage. As such, it appears that new and existing actors in the market make their house purchase decisions on the basis of a common information set.

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