Understanding rental prices in the UK: a comparative application of spatial modelling approaches

Abstract

Purpose – Accounting for locational effects in determining price is of fundamental importance. The demise of the mainstream property market has culminated in increasing appetite and investment activity within the private rental sector. The primary purpose of this paper aims to analyse the local variation and spatial heterogeneity in residential rental prices in a large urban market in the UK using various geo-statistical approaches. Design/methodology/approach – Applying achieved price data derived from a leading internet-based rental agency for Belfast Northern Ireland is analysed in a number of spatially based modelling frameworks encompassing more traditional approaches such as hedonic regressive models to more complex spatial filtering methods to estimate rental values as a function of the properties implicit characteristics and spatial measures. Findings – The principal findings show the efficacy of the geographically weighted regression (GWR) technique as it provides increased accuracy in predicting marginal price estimates relative to other spatial techniques. The results reveal complex spatial non-stationarity across the Belfast metropole emphasizing the premise of location in determining and understanding rental market performance. A key finding emanating from the research is that the high level of segmentation across localised pockets of the Belfast market, as a consequence of socio-political conflict and ethno-religious territoriality segregation, requires further analytical insight and model specification in order to understand the exogenous spatial and societal effects/implications for rental value. Originality/value – This study is one of only a few investigations of spatial residential rent price variation applying the GWR methodology, spatial filtering and other spatial techniques within the confines of a UK housing market. In the context of residential rent prices, the research highlights that a soft segmentation modelling approaches are essential for understanding rental gradients in a polarised ethnocratic city.