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Property Renovations and Their Impact on House Price Index Construction

Author

Listed:
  • Alexander N. Bogin

    (Federal Housing Finance Agency)

  • William M. Doerner

    (Federal Housing Finance Agency)

Abstract

This paper provides the first wide-scale analysis of property renovation bias in repeat-sales house price indices across a multitude of U.S. geographies. Property improvements frequently lead to positive quality drift. In local markets, omitting information on property improvements can bias index estimates upwards. Bias often varies in a predictable manner and can distort valuations by as much as 15 percent in the central districts of large cities. This systematic variation in bias is partially a function of the disparate concentration of renovation activity with property improvements occurring more frequently in denser areas. The distortionary effect of not accounting for property renovations tends to decline outside of downtown areas and is generally negligible in smaller cities (populations below 500,000).

Suggested Citation

  • Alexander N. Bogin & William M. Doerner, 2017. "Property Renovations and Their Impact on House Price Index Construction," FHFA Staff Working Papers 17-02, Federal Housing Finance Agency.
    • Handle: RePEc:hfa:wpaper:17-02
    DOI: 10.1080/10835547.2019.12091526
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    References listed on IDEAS

    as
    1. Alexander Bogin & William Doerner & William Larson, 2019. "Local House Price Dynamics: New Indices and Stylized Facts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 47(2), pages 365-398, June.
    2. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    3. Steven C. Bourassa & Eva Cantoni & Martin Hoesli, 2013. "Robust Repeat Sales Indexes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 41(3), pages 517-541, September.
    4. Leah Brooks & Byron Lutz, 2016. "From Today's City to Tomorrow's City: An Empirical Investigation of Urban Land Assembly," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 69-105, August.
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    Cited by:

    1. Adam D. Nowak & Patrick S. Smith, 2020. "Quality-Adjusted House Price Indexes," American Economic Review: Insights, American Economic Association, vol. 2(3), pages 339-356, September.

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    More about this item

    Keywords

    property renovations; house price indices; repeat-sales approach;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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