Neighborhood effects and maintenance of the urban housing stock*

Abstract

This paper presents and analyzes a theoretical model of the impact of neighborhood effects upon the maintenance of urban housing stock. The rental value of a dwelling unit is related not only to its own physical characteristics but also to those of other dwelling units in its neighborhood. The physical characteristics of dwelling units depend upon how much their owners spend on maintenance. Since these expenditures are undertaken only in so far as they enhance the rental value of properties, the maintenance policies of a neighborhood's owners are interdependent. The model focuses explicitly on the aspects of this process that involve multiperson decisions. Concepts concerning equilibrium are introduced; short run equilibria are shown to exist, and conditions for their uniqueness are derived. Comparative static results are established, and stability properties of the static equilibria analyzed.