Estimating the Impact of Agglomeration on Housing Market

Abstract

In the latest political discourses, urban agglomerations are considered as poles of growth. However, an impact of large cities on the neighboring territories is ambiguous and depends on how successfully the impulses and quality of growth is transmitted from the center to the periphery. The paper presents empirical estimates of the effect the agglomeration process produces on the value of residential real estate. The housing market is known as an indicator of income level in the population and perspectives of territorial development. The tested assumption (hypothesis) implies that in the cities adjacent to the agglomerations housing prices are higher than in the settlements beyond its borders. Coupled with the fact of belonging to agglomeration, in the regression, where dependent variable is the average residential square meter price , the distance to the center of the metropolitan area, the distance to Moscow, and the population density in the city is controlled. The estimates showed that in the cities of agglomeration housing prices are significantly higher than in the cities outside the agglomeration. This result is an indirect confirmation of the fact that positive effects of agglomeration process are dominating in the Russian urban system. Practical recommendation of the paper is to provide an institutional environment aimed at efficient urban governance, development of agglomerations and realization of their potential on the basis of federalism and decentralization.