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Comparing House Prices Across Regions and Time: An Hedonic Approach

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  • Robert J. Hill

    ()
    (School of Economics, The University of New South Wales)

  • Daniel Melser

    ()
    (Moody’s Economy.Com)

Abstract

Panel hedonic comparisons can be made using the region-time-dummy method. This method is a natural extension of the well known time-dummy and region-dummy methods which have been used extensively in the hedonic literature. We show that these methods are all affected by substitution bias, which can seriously distort their results. We propose an alternative approach that is free of substitution bias which builds up panel comparisons from bilateral building blocks using the hedonic imputation method. This approach is very flexible. We consider a number of variants on this method, all of which are likely to be improvements on the unconstrained region-time-dummy method. We illustrate our findings using data for 14 regions in Sydney over a six year period. We find clear evidence of bias in the region-time-dummy results as well as in simple average measures such as the median that fail to adjust for quality change. For these reasons we favor the hedonic imputations approach.

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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2007-33.

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Length: 32 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:swe:wpaper:2007-33

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Keywords: Hedonic regression; Quality adjustment; Housing; Price index; Substitution bias; Multilateral indexes;

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References

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Cited by:
  1. Melser, Daniel & Syed, Iqbal, 2007. "Life Cycle Pricing and the Measurement of Inflation," MPRA Paper 16722, University Library of Munich, Germany, revised 07 Jul 2008.
  2. Iqbal Syed & Daniel Melser, 2008. "Prices over the Product Life Cycle: An Empirical Analysis," Discussion Papers 2008-25, School of Economics, The University of New South Wales.

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