Housing submarket classification: The role of spatial contiguity

Understanding housing submarket structure is of crucial importance to both public and private agencies. It can also help current and future homeowners make informed decisions on their residential choices. Current research on submarket focuses on comparative analyses of different classification techniques. Few studies, however, have examined the function of spatial contiguity on housing submarket classification. To address this issue, this paper developed a spatially constrained data-driven submarket classification methodology to obtain spatially integrated housing market segments. Specifically, a data-driven model based on principal component analysis and cluster analysis was developed for delineating housing submarkets. Within the model, a number of location attributes were used for principal component analysis, and the geographic locations of houses were also incorporated in the cluster analysis. The performance of this method was compared with other unconstrained data-driven techniques and a priori classifications using three measurements: substitutability, spatial integrity, and similarity. Results indicate that spatially contiguous submarkets can be obtained without compromising housing hedonic model accuracy and attribute homogeneity.