Exploring the determinants of residential property values in a crisis: evidence from Greece

The recent financial crisis demonstrated once again the importance of the housing market to macro-economic performance and financial stability highlighting the need to understand better the determinants of house prices in different jurisdictions. But similarly the economic swing caused by the financial crisis has had an impact on residential values calling for empirical evidence on the specific factors behind residential price adjustments in this characteristic macroeconomic environment. The objective of this paper is to establish the most important determinants of residential property values in Greece focusing on residential prices in twenty-five major cities in the country. For this purpose, alternative hedonic models have been estimated using a large database of appraisal-based values provided by commercial banks for the period 2006-2013. This particular sample period makes the study of residential prices of greater interest. The determinants of property values across cities are examined in a period of an unprecedented swing in the Greek economy, the result of the sovereign debt crisis, with positive growth rates giving way to a cumulative contraction of the economy of over 20%. Indeed, residential property values in Greece have shown a significant cross section variation.This analysis controls for the impact of macroeconomic conditions across cities and examines the cross city variation in house prices with reference to four categories of influences: (i)socio-economic influences in particular the prefecture’s population density and GDP(ii)location characteristics (eg accessibility) (iii)Infrastructure (eg airport) and amenities(ii) physical characteristics and property specification, primarily age, property type, surface, floor-level, construction quality, storage area, parking space, etc. We find that the location characteristics variables carry significant power for the observed differences in house prices in key cities in Greece. The empirical investigation also offers support to the role of physical characteristics in determining the value of the property. On the other hand amenities like the existence of an airport, university or hospital seem to have a limited effect.