House price depreciation rates and level of maintenance
AbstractMy objective in this paper is to estimate different depreciation rates of house prices depending on the level of maintenance of the property and the location of the property. I do this by supplementing transaction price data with owner information about level of maintenance. The result indicates that the level of maintenance has a substantial impact on the price level. Since maintenance offsets some of the physical deterioration of the property, the depreciation rate will be lowered by maintenance, ceteris paribus. To be able to estimate maintenance effects on depreciation rates, I isolated the interaction effect between the level of maintenance and the age of the property to allow for the fact that maintenance has an impact on the effective age of the property. In this study, I separate maintenance into indoor and outdoor maintenance levels (or absence of maintenance). My results show that the depreciation rates are significantly different for a maintained property and for a property that is not maintained. The price difference between a 40-year-old property (built in 1960) and maintained both indoors and outdoors and a property of the same age that is not maintained is about 13% (-10% compared to -23% in total age effect). The absence of outdoor maintenance has more impact on price depreciation rates.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Housing Economics.
Volume (Year): 17 (2008)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/inca/622881
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