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The hedonic price method in real estate and housing market research. A review of the literature

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  • Herath, Shanaka
  • Maier, Gunther

Abstract

The Hedonic Price Method (HPM), also known as hedonic regression, is used for estimating the value of a commodity or the demand for a commodity. The HPM has been extensively used in real estate and housing market research in the recent past. In this paper, we discuss theoretical and methodological developments related to hedonic regression and undertake an examination of use of this methodology in the recent real estate and housing literature. We first define the HPM, and explain the fundamentals behind the methodology. The idea behind the HPM is that the commodities are characterized by their constitute properties, hence the value of a commodity can be calculated by adding up the estimated values of its separate properties. In the second part of the paper, we emphasise that the heterogeneous nature of real estate property justifies the use of HPM for estimating their value or demand. We also take a stock of most cited empirical studies on real estate and housing using the HPM, and classify those into several categories. The classification indicates that neighbourhood characteristics of real estate are relatively over-researched as a determinant of price or rent. It also shows that implicit value of structural characteristics is under-researched. In general, implicit value of environmental amenities in the neighbourhood and air pollution are relatively overresearched. The effect of social factors, i.e. racial segregation and crimes on real estate value is under-researched. (authors's abstract)

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  • Herath, Shanaka & Maier, Gunther, 2010. "The hedonic price method in real estate and housing market research. A review of the literature," SRE-Discussion Papers 2010/03, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus009:588
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    Cited by:

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    3. Elżbieta Jasińska & Edward Preweda, 2021. "Statistical Modelling of the Market Value of Dwellings, on the Example of the City of Kraków," Sustainability, MDPI, vol. 13(16), pages 1-25, August.
    4. Ayaz Ahmad & Nasir Iqbal & Rehana Siddiqui, 2018. "Determinants of Housing Demand in Urban Areas of Pakistan: Evidence from the PSLM," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(1), pages 1-25.
    5. Sandi, Eleni, 2023. "Estimating the Impact of the Minimum Energy Efficiency Standard on Property Prices," Warwick-Monash Economics Student Papers 47, Warwick Monash Economics Student Papers.
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    7. Kaida Chen & Hanliang Lin & Oliver F. Shyr & Shuying You, 2023. "What are the differences in urban citizens’ preferences for the colour of condominium building facades?," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
    8. Kelly D. Edmiston, 2012. "Nonprofit housing investment and local area home values," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q I), pages 67-96.
    9. Gunther Maier, 2011. "Immobilienbewertung - theoretische Konzepte und praktische Anwendungen," SRE-Disc sre-disc-2011_03, Institute for Multilevel Governance and Development, Department of Socioeconomics, Vienna University of Economics and Business.
    10. Hugo Schnoering & Hugo Inzirillo, 2022. "Constructing a NFT Price Index and Applications," Papers 2202.08966, arXiv.org, revised Mar 2022.
    11. Saeed Asadi Bagloee & Mitra Heshmati & Madjid Tavana & Debora Di Caprio, 2017. "A logit-based model for measuring the effects of transportation infrastructure on land value," Transportation Planning and Technology, Taylor & Francis Journals, vol. 40(2), pages 143-166, February.
    12. Wolfgang Brunauer & Stefan Lang & Wolfgang Feilmayr, 2013. "Hybrid multilevel STAR models for hedonic house prices," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 33(2), pages 151-172, October.
    13. Pablo Picardo, 2019. "Predicción de precios de vivienda: Aprendizaje estadístico con datos de oferta y transacciones para la ciudad de Montevideo," Documentos de trabajo 2019002, Banco Central del Uruguay.
    14. Martin Jurkovic & Dirk Schiereck, 2023. "Internationale Büroimmobilien-Investoren: Preisprämien aufgrund von Selektionsverzerrungen? [International office investors: price premiums due to “selection bias”?]," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 9(1), pages 1-29, April.
    15. Ermanno Affuso & John Reid Cummings & Donald Alex Beebe & Steven R. Schultze, 2022. "Endogenous, Regime-Switching Hedonic Estimation of Commercial Waterway Water Quality Impact on Home Values in the Alabama Black Belt," Sustainability, MDPI, vol. 14(18), pages 1-17, September.
    16. Shanaka Herath, 2011. "Does it matter how far you live from the city centre? A study of apartment values in Vienna," ERES eres2011_97, European Real Estate Society (ERES).
    17. Hyunsoo Kim & Youngwoo Kwon & Yeol Choi, 2020. "Assessing the Impact of Public Rental Housing on the Housing Prices in Proximity: Based on the Regional and Local Level of Price Prediction Models Using Long Short-Term Memory (LSTM)," Sustainability, MDPI, vol. 12(18), pages 1-25, September.
    18. Benedetti Ilaria & Laureti Tiziana & Biggeri Luigi, 2022. "Sub-National Spatial Price Indexes for Housing: Methodological Issues and Computation for Italy," Journal of Official Statistics, Sciendo, vol. 38(1), pages 57-82, March.

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