Investigating How the Rents of Small Urban Houses are Determined: Using Spatial Hedonic Modeling for Urban Residential Housing in Seoul

The Seoul metropolitan government has launched the Urban Residential Housing (URH) program to address the shortage of small urban houses, and enhance residential stability for the increasing number of one- and two-person households in Seoul, Korea. While studies have examined the price premium of locational and neighborhood environmental features for houses in general, little is known about how and to what extent these features influence the rents of small urban houses. We estimate and compare conventional and spatial hedonic price models (HPMs) to examine the effects of those features on the monthly rents of URH units, while using geographic information system techniques to measure the variables. We found that the spatial HPM outperforms the conventional HPM in terms of goodness of fit measures. All of the locational features, and most of the variables with respect to the neighborhood environment, had a significant impact on rents. Rent tended to be lower in areas adjacent to a university, suggesting that it is a good place for one and two-person households to enhance residential affordability. However, access to parks does not appear to be important for residents. We conclude that the people who live in small urban houses are inclined to place a premium on rents in different ways.