We are again honored to have Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research as our guest blogger. To view other research from FIU, visit http://realestate.fiu.edu/. - The KCM Crew
What is in a Subdivision’s Name?
What is in a subdivision’s name? Is there any pricing effect based on the name of a subdivision? All else being equal and at first glance, there might not appear to be any relationship between the values of properties in a subdivision and the name of a subdivision. However, housing is unlike other financial assets (stock and bonds) where only expected returns affect price. Housing is simultaneously an investment and a consumption good. This dual role can lead to strange pricing results. Therefore, a subdivision’s name might convey extra value for reasons of prestige and conspicuous consumption.
Zahirovic-Herbert and Chatterjee (2011) investigate this very question. Specifically, they examine for the impact on property price for the terms “Country” and “Country Club” in subdivision names in Baton Rouge, Louisiana. After controlling for location, property age, property size, and a host of other property characteristics typically found in housing price studies, they find that buyers assign a pricing premium of 4.2% for “Country” and an additional 5.1% for “Country Club”. The authors argue that these findings are a result of buyers’ willingness to pay for added prestige from the ownership of properties in these subdivisions.
Implications for Practice
Practicing real estate professionals have been making this conspicuous consumption argument for years to their clients. It is abundantly clear to agents and brokers that this phenomenon exists. However, it is hard to persuade buyers that there is reasoning behind this argument because they know that a higher commission is at stake. Said another way, they think the agent is providing this prestige based argument in order to make a higher commission.
After ready this brief piece, however, agents can point to the science behind conspicuous consumption, subdivision names, and property prices. Clearly certain subdivision names (that may vary by location across the country) convey additional prestige from ownership, which leads to slightly higher prices for properties within these areas.
It is no longer an agent trying to explain their experience and knowledge to skeptical clients. Now, there is science (statistical evidence) to support the conspicuous consumption effect in certain subdivision names.
 Zahirovic-Herbert, Velma and Swarn Chatterjee. (2011). What is the Value of a Name? Conspicuous Consumption and House Prices.
 The concept of conspicuous consumption is clearly present in housing prices. Unfortunately, the naming that creates extra prestige is unclear and most certainly varies across the country.