Factor Analytic Approach to Incorporating Systematic Taste Variation into Models of Residential Location Choice

In the development of residential location choice models, multicollinearity among measures of socioeconomic status and family status prohibits the inclusion of a large number of these attributes in a single specification. Alternative methods of representing these attributes with a smaller number of summary or representative measures are tested. Factor analysis is performed on the census tract–level family status and socioeconomic status variables to produce factor scores that are used in residential location choice models. The factor analysis results are also used to select one representative socioeconomic status variable and one representative family status variable to be used in choice models. These approaches are tested against a base model that uses a full set of 11 attributes. To incorporate systematic taste variation, the factors and representative variables are interacted with individual household income and life-cycle characteristics. The factor analysis approach provides a clearer interpretation of the influence of socioeconomic status and family status than inclusion of multiple variables, which obtains many nonsignificant and counterintuitive parameters. The factor scores are preferred over the use of a single representative variable, which is not readily interpreted with respect to impact of the variables it represents.