Journal of Real Estate Finance and Economics, 22:1, 81±97, 2001
# 2001 Kluwer Academic Publishers. Manufactured in The Netherlands.
Neighborhood Diversity and House-Price Appreciation
DAVID A. MACPHERSON
Department of Economics, Florida State University, Tallahassee, FL 32306
G. STACY SIRMANS
Department of Insurance, Real Estate, and Business Law, FL State University, Tallahassee, FL 32306
This study examines changes in house prices relative to the level of and change in percent racial/ethnic
composition for certain counties in Tampa and Orlando, Florida. Repeat-sales transactions between 1971 and
1997 are used to create a constant quality price index for each city. The index for Tampa shows that the average
annual house price appreciation was 5.89 percent over the period 1970 through 1997. The index for Orlando
shows that the average annual house price appreciation was 5.25 percent over the 1970 through 1997 period.
When the Tampa index model is expanded to account for race/ethnicity, household factors, and economic
factors, the level of African American population has no signi®cant effect on house-price appreciation; however,
the change in percent African American has a negative effect. The level of percent Hispanic population has a
positive effect, and the change in percent Hispanic has a positive effect.
The expanded Orlando model shows that the level of percent African American population has no signi®cant
effect on price appreciation, while the change in percent African American has a negative effect. The level of
Hispanic population has a positive effect, while the change in percent in Hispanic has a negative effect.
Key Words: house price index, race, ethnicity, house price appreciation
Because real estate is location speci®c, the movement in house prices is of interest
primarily at the local level. Homeowners buy and mortgage lenders lend against individual
properties in speci®c neighborhoods. Likewise, local regulators and policy makers are
concerned with neighborhood preservation or restoration. This study examines changes in
house prices relative to the racial composition of the location by examining the real estate
cycles of generally minority versus nonminority census tracts for two Florida cities.
Repeat-sale transactions are used to create price indexes, and the analysis will control for
There is research on differences in house prices across neighborhoods of varying racial
compositions (see, for example, Kim, 1995; Follain and Malpezzi, 1981; Mieszkowski,
1979; Schafer, 1979; and Yinger, 1979). Also, the issue of discrimination in mortgage
lending has been studied extensively (see, for example, Horne, 1997, 1994; Rosenblatt,
1997; and Wienk, 1992). The issue of house-price appreciation by neighborhood type,
however, has received less attention. A 1991 study by Pollakowski, Stegman, and Rohe
examines whether affordable housing experiences different rates of price appreciation