Transit premium and rent segmentation: A spatial quantile hedonic analysis of Shanghai Metro

When measuring the betterment effect of public transit, most of the existing econometric research tends to use residential property price data and to focus on the conditional mean rather than the conditional variance in terms of the implicit price premium paid for access to public transit. However, because property sale price partly reflects speculation on future capital gains, it sheds little light on the renters’ willingness-to-pay for living near public transportation facilities, let alone the variation in rent premium for transit proximity. We in this paper employ a spatial quantile hedonic regression method to gauge the rental impact of metro stations on a large sample of two-bedroom-one-bathroom (2b1b) apartments across 2575 residential complex communities (or “xiaoqu” in mandarin Chinese) in Shanghai, China, as observed between December 2012 and January 2013. We find: a) a community's geographic adjacency to the nearest Shanghai Metro station tends to correlate positively with the xiaoqu's average asking rent of 2b1b apartments, indicating a significant rent premium for transit proximity; b) although the transit premium fluctuates across the different rent levels, the variation is statistically insignificant, suggesting no evidence of transit-induced segmentation of the local private residential rental market. Apart from its policy implications, this paper demonstrates a US-China comparative perspective and a novel spatial quantile regression approach to test the segmentation effect of mass transit in a dynamic urban housing market.