DP3161 Hedonic House Prices Without Characteristics: The Case of New Multiunit Housing

Author(s): Olympia Bover, Pilar Velilla Lucini
Publication Date: January 2002
Keyword(s): hedonic price indices, house prices, quality adjustment, site specific effects, unobservable characteristics
JEL(s): C43, E31, O47
Programme Areas: Public Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3161

In this Paper we propose an alternative to traditional hedonics for estimating new multiunit housing inflation, adjusting for quality changes. By relying on the within-site variation we control in a very general way for unobserved housing characteristics using site-specific effects. Precise location, transport, traffic, closeness to services, or construction quality are some of the unobserved but typically relevant housing characteristics that may bias estimated house price inflation, even when using hedonic methods. We also estimate standard hedonic equations and compare the results to those obtained with the alternative hedonic equations with site dummies. Our dataset is fairly rich in observable housing characteristics but, nevertheless, the quality-adjusted house price evolution is quite different in some cases. The data cover the construction of new housing in some of the large Spanish cities and in the smaller towns on the outskirts of the capital during part of the 1990s.