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Information Value of Property Description: A Machine Learning Approach

Author

Listed:
  • Lily Shen

    (Clemson University)

  • Stephen L. Ross

    (University of Connecticut)

Abstract

This paper employs machine learning to quantify the value of “soft” information con-tained in real estate property descriptions. Textual descriptions contain information that traditional hedonic attributes cannot capture. A one standard deviation increase in the uniqueness of a property based on this “soft” information leads to a 15% increase in property sale price in a hedonic price model and a 10% increase in a repeat sales price model. The effects in the hedonic model appear to arise through two channels: the unobserved quality of the housing unit, and the market power of the housing unit relative to competing properties. The effects in the repeat sales model appear to be driven entirely by the market power of the unit. Further, an annual hedonic price index ignoring our measure of unobserved quality overstates real estate prices by be-tween 10% to 23% and mistimes the stabilization of housing prices following the Great Recession. Similar, but smaller effects, are observed for the repeat sales price index.

Suggested Citation

  • Lily Shen & Stephen L. Ross, 2019. "Information Value of Property Description: A Machine Learning Approach," Working papers 2019-20, University of Connecticut, Department of Economics, revised Sep 2020.
    • Handle: RePEc:uct:uconnp:2019-20
    as

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    References listed on IDEAS

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    Cited by:

    1. Wan, Wayne Xinwei & Lindenthal, Thies, 2022. "Towards accountability in machine learning applications: A system-testing approach," ZEW Discussion Papers 22-001, ZEW - Leibniz Centre for European Economic Research.
    2. Stephen L. Ross & Tingyu Zhou, 2020. "Documenting Loss Aversion using Evidence of Round Number Bias," Working papers 2020-17, University of Connecticut, Department of Economics.
    3. Stephen L. Ross & Tingyu Zhou, 2020. "Documenting Loss Aversion Using Evidence of Round Number Bias," Working Papers 2020-079, Human Capital and Economic Opportunity Working Group.
    4. Lily Shen & Sean Wilkoff, 2022. "Cleanliness is next to income: The impact of COVID‐19 on short‐term rentals," Journal of Regional Science, Wiley Blackwell, vol. 62(3), pages 799-829, June.

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    More about this item

    Keywords

    Natural Language Processing; Unsupervised Machine Learning; Soft Information; Housing Prices; Price indexes; Property Descriptions;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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