Love Thy Neighbours : Ethnic Price Differentials in a Multi-ethnic Housing Market

New Zealand is a multi-ethnic society that embraces multiculturism. Many studies have examined how the size of the minority population affects residential property values. However, very few studies have recognised that the qualities of neighbourhoods may cause such price differentials. We use the repeat-sales model, based on more than 66,000 housing transactions in the most ethnically diverse city in New Zealand, to identify the effects of neighbourhood qualities and ethnic concentrations. We argue that the commonly perceived ethnic housing price discount may not be ethnic discrimination but the perception of homebuyers on neighbourhood qualities. After controlling neighbourhood qualities, the ethnic price differential becomes insignificant. The neighbourhood quality hypothesis is further confirmed using the quasi-experiment with Special Housing Area as an exogenous amenity shock in a spatial-temporal differencing model. The finding suggests that using the conventional hedonic model without considering the neighbourhood qualities can be misleading