Spatial Interactions in Business and Housing Location Models

Abstract

The paper combines theoretical models of housing and business locations and shows that they have the same determinants. It evidences that classical, behavioural, new economic geography, evolutionary and co-evolutionary frameworks apply simultaneously, and one should consider them jointly when explaining urban structure. We use quantitative tools in a theory-guided factors induction approach to show the complexity of location models. The paper discusses and measures spatial phenomena as distance-decaying gradients, spatial discontinuities, densities, spillovers, spatial interactions, agglomerations, and as multimodal processes. We illustrate the theoretical discussion with an empirical case of interacting point-patterns for business, housing, and population. The analysis reveals strong links between housing valuation and business location and profitability, accompanied by the related spatial phenomena. It also shows that assumptions concerning unimodal spatial urban structure, the existence of rational maximisers, distance-decaying externalities, and a single pattern of behaviour, do not hold. Instead, the reality entails consideration of multimodality, a mixture of maximisers and satisfiers, incomplete information, appearance of spatial interactions, feed-back loops, as well as the existence of persistence of behaviour, with slow and costly adjustments of location.