IDEAS home Printed from https://ideas.repec.org/a/eee/jhouse/v26y2014icp126-138.html
   My bibliography  Save this article

The impact of construction quality on house prices

Author

Listed:
  • Ooi, Joseph T.L.
  • Le, Thao T.T.
  • Lee, Nai-Jia

Abstract

This paper examines the impact of workmanship and construction quality of new housing on their sale price and capital growth. To measure construction quality, we take advantage of a unique situation in Singapore where newly completed residential projects are assessed independently on their workmanship under the Construction Quality Assessment System (CONQUAS). Examining 100,593 sale transactions of apartment units in 205 residential developments completed between 1998 and 2010, we find strong evidence that their selling price and appreciation rate are related significantly to construction quality of the new homes. Moreover, the “quality” premium is present in both the primary and secondary markets. The empirical evidence suggests that apartments that are well constructed not only command a higher price for developers, but they also generate higher capital gains for homeowners and investors in the future.

Suggested Citation

  • Ooi, Joseph T.L. & Le, Thao T.T. & Lee, Nai-Jia, 2014. "The impact of construction quality on house prices," Journal of Housing Economics, Elsevier, vol. 26(C), pages 126-138.
    • Handle: RePEc:eee:jhouse:v:26:y:2014:i:c:p:126-138
    DOI: 10.1016/j.jhe.2014.10.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1051137714000497
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jhe.2014.10.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. K. Chau & S. Wong & C. Yiu, 2007. "Housing Quality in the Forward Contracts Market," The Journal of Real Estate Finance and Economics, Springer, vol. 34(3), pages 313-325, April.
    2. Henry Munneke & Joseph T.L. Ooi & C.F. Sirmans & Geoffrey K. Turnbull, 2011. "Sequential Sales Of Similar Assets: The Law Of One Price And Real Estate," Journal of Regional Science, Wiley Blackwell, vol. 51(2), pages 355-370, May.
    3. Smith, Lawrence B. & Ho, Michael H. C., 1996. "The Relative Price Differential between Higher and Lower Priced Homes," Journal of Housing Economics, Elsevier, vol. 5(1), pages 1-17, March.
    4. Van Ommeren, Jos & Koopman, Marnix, 2011. "Public housing and the value of apartment quality to households," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 207-213, May.
    5. Ooi, Joseph T.L. & Le, Thao T.T., 2013. "The spillover effects of infill developments on local housing prices," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 850-861.
    6. Archer*, Wayne R. & Gatzlaff+, Dean H. & Ling*, David C., 1996. "Measuring the Importance of Location in House Price Appreciation," Journal of Urban Economics, Elsevier, vol. 40(3), pages 334-353, November.
    7. David le Blanc & Christine Lagarenne, 2004. "Owner-Occupied Housing and the Composition of the Household Portfolio: The Case of France," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 259-275, November.
    8. Moon, Choon-Geol & Stotsky, Janet G, 1993. "The Effect of Rent Control on Housing Quality Change: A Longitudinal Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1114-1148, December.
    9. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    10. Lichtenstein, Larry & Kern, Clifford R., 1987. "The cost of quality in existing housing: Estimates from an implicit markets model," Journal of Urban Economics, Elsevier, vol. 22(3), pages 324-339, November.
    11. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
    12. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    13. Yehiel Rosenfeld, 2009. "Cost of quality versus cost of non-quality in construction: the crucial balance," Construction Management and Economics, Taylor & Francis Journals, vol. 27(2), pages 107-117.
    14. N. Edward Coulson & Michael L. Lahr, 2005. "Gracing the Land of Elvis and Beale Street: Historic Designation and Property Values in Memphis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(3), pages 487-507, September.
    15. Henry O. Pollakowski & Michael A. Stegman & William Rohe, 1991. "Rates of Return on Housing of Low‐and Moderate‐Income Owners," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 417-425, September.
    16. Sims, David P., 2007. "Out of control: What can we learn from the end of Massachusetts rent control?," Journal of Urban Economics, Elsevier, vol. 61(1), pages 129-151, January.
    17. Joseph T. L. Ooi & Thao T. T. Le, 2012. "New Supply and Price Dynamics in the Singapore Housing Market," Urban Studies, Urban Studies Journal Limited, vol. 49(7), pages 1435-1451, May.
    18. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    19. Barton A. Smith & William P. Tesarek, 1991. "House Prices and Regional Real Estate Cycles: Market Adjustments in Houston," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 396-416, September.
    20. Steven C. Bourassa & Donald R. Haurin & Jessica L. Haurin & Martin Hoesli & Jian Sun, 2009. "House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(2), pages 259-278, June.
    21. Englund, Peter & Hwang, Min & Quigley, John M, 2002. "Hedging Housing Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 24(1-2), pages 167-200, Jan.-Marc.
    22. Clapp, John M & Giaccotto, Carmelo, 1998. "Price Indices Based on the Hedonic Repeat-Sales Method: Application to the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 16(1), pages 5-26, January.
    23. Curtis R. Taylor, 1999. "Time-on-the-Market as a Sign of Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(3), pages 555-578.
    24. Andrew E. Baum, 1993. "Quality, Depreciation, and Property Performance," Journal of Real Estate Research, American Real Estate Society, vol. 8(4), pages 541-566.
    25. Gyourko, Joseph & Linneman, Peter, 1990. "Rent controls and rental housing quality: A note on the effects of New York City's old controls," Journal of Urban Economics, Elsevier, vol. 27(3), pages 398-409, May.
    26. Kerry D. Vandell & Jonathan S. Lane, 1989. "The Economics of Architecture and Urban Design: Some Preliminary Findings," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 235-260, June.
    27. Yong-Woo Kim & Sang-Chul Kim, 2011. "Cost analysis of information technology-assisted quality inspection using activity-based costing," Construction Management and Economics, Taylor & Francis Journals, vol. 29(2), pages 163-172.
    28. Jun Chen & Ronald Rutherford, 2012. "Quality & Time-on-the-Market in Residential Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 414-428, April.
    29. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
    30. Hendershott, Patric H. & Cheng Hu, Sheng, 1981. "Inflation and extraordinary returns on owner-occupied housing: Some implications for capital allocation and productivity growth," Journal of Macroeconomics, Elsevier, vol. 3(2), pages 177-203.
    31. Kenneth F. Wieand, 1983. "The Performance of Annual Housing Survey Quality Measures in Explaining Dwelling Rentals in 20 Metropolitan Areas," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 11(1), pages 45-68, March.
    32. Firuzan Yasamis & David Arditi & Jamshid Mohammadi, 2002. "Assessing contractor quality performance," Construction Management and Economics, Taylor & Francis Journals, vol. 20(3), pages 211-223.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yi-Kai Juan & I-Chieh Lin, 2018. "Optimal Cost–Quality Trade-Off Model for Differentiating Presale Housing Quality Strategies," Sustainability, MDPI, vol. 10(3), pages 1-17, March.
    2. He, Jia & Wu, Jing, 2016. "Doing well by doing good? The case of housing construction quality in China," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 46-53.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven C. Bourassa & Donald R. Haurin & Jessica L. Haurin & Martin Hoesli & Jian Sun, 2009. "House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(2), pages 259-278, June.
    2. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
    3. Blair Jenkins, 2009. "Rent Control: Do Economists Agree?," Econ Journal Watch, Econ Journal Watch, vol. 6(1), pages 73-112, January.
    4. He, Jia & Wu, Jing, 2016. "Doing well by doing good? The case of housing construction quality in China," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 46-53.
    5. Gabriel M. Ahlfeldt & Nancy Holman, 2018. "Distinctively Different: A New Approach to Valuing Architectural Amenities," Economic Journal, Royal Economic Society, vol. 128(608), pages 1-33, February.
    6. Graff Zivin, Joshua & Liao, Yanjun & Panassié, Yann, 2023. "How hurricanes sweep up housing markets: Evidence from Florida," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    7. Livy, Mitchell R., 2017. "The effect of local amenities on house price appreciation amid market shocks: The case of school quality," Journal of Housing Economics, Elsevier, vol. 36(C), pages 62-72.
    8. Crocker H. Liu & Adam Nowak & Stuart Rosenthal, 2014. "Bubbles, Post-Crash Dynamics, and the Housing Market," Working Papers 14-18, Department of Economics, West Virginia University.
    9. Charles Ka Yui LEUNG & Wai Yip MA & Jun ZHANG, 2014. "The Market Valuation of Interior Design and Developer Strategies: A Simple Theory and Some Evidence," International Real Estate Review, Global Social Science Institute, vol. 17(1), pages 63-107.
    10. 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.
    11. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 987-1045, Elsevier.
    12. Konstantin A. Kholodilin, 2022. "Rent Control Effects through the Lens of Empirical Research," DIW Roundup: Politik im Fokus 139, DIW Berlin, German Institute for Economic Research.
    13. Sims David P, 2011. "Rent Control Rationing and Community Composition: Evidence from Massachusetts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-30, May.
    14. Yi-Kai Juan & I-Chieh Lin, 2018. "Optimal Cost–Quality Trade-Off Model for Differentiating Presale Housing Quality Strategies," Sustainability, MDPI, vol. 10(3), pages 1-17, March.
    15. Gabriel M. Ahlfeldt, 2010. "Architektur, Ökonomie – Architekturökonomie," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(4), pages 340-355, November.
    16. Redfearn, Christian L., 2009. "How informative are average effects? Hedonic regression and amenity capitalization in complex urban housing markets," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 297-306, May.
    17. Tingyu Zhou & John M Clapp & Ran Lu‐Andrews, 2022. "Examining omitted variable bias in anchoring premium estimates: Evidence based on assessed value," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 789-828, September.
    18. Gabriel M. Ahfeldt & Alexandra Mastro, 2011. "Valuing Iconic Design: Frank Lloyd Wright Architecture in Oak Park, Illinois," SERC Discussion Papers 0084, Centre for Economic Performance, LSE.
    19. Gerardi, Kristopher & Rosenblatt, Eric & Willen, Paul S. & Yao, Vincent, 2015. "Foreclosure externalities: New evidence," Journal of Urban Economics, Elsevier, vol. 87(C), pages 42-56.
    20. Ooi, Joseph T.L. & Le, Thao T.T., 2013. "The spillover effects of infill developments on local housing prices," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 850-861.

    More about this item

    Keywords

    Construction quality; Housing; Price inflation;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jhouse:v:26:y:2014:i:c:p:126-138. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622881 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.