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The hedonic model and the housing cycle

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  • Zabel, Jeffrey

Abstract

The hedonic house price model is a significant workhorse when it comes to estimating the value of local public goods such as school quality and crime, and locational amenities such as job accessibility. Given Rosen's (1974) result that hedonic coefficients can be interpreted as the marginal willingness to pay (MWTP) for the good, the hedonic model can be used to calculate the benefits of policies based on improving school performance or public safety. One of the key assumptions for this interpretation of the hedonic coefficients as MWTP is that the market is in equilibrium. The recent turbulence in the U.S. housing market has led many researchers to question the interpretation of the hedonic coefficients. Putting periods of significant market instability aside, housing markets go through cycles just as the economy does. One might expect, then, that hedonic coefficients will also vary over the housing cycle.

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  • Zabel, Jeffrey, 2015. "The hedonic model and the housing cycle," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 74-86.
    • Handle: RePEc:eee:regeco:v:54:y:2015:i:c:p:74-86
    DOI: 10.1016/j.regsciurbeco.2015.07.005
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