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Housing Demand with Random Group Effects



This paper examines the random group effect, which has usually not been considered in traditional housing demand studies. Frequently, group level variables are used in housing demand estimation due to the data constraint. For instance, the US Index of Housing Price per administrative area is often used to measure the housing price when estimating the US price elasticity of demand for housing, and the average household income is often used as a proxy for the individual income in Taiwan when estimating the income elasticity of demand for housing. Econometricians argue that the traditional OLS estimation, when the random group effect is ignored, has been considered to have a downward bias in the estimated standard error. By following Amemiya (1978) and Borjas and Sueyoshi (1994), we propose a two-stage estimation technique to estimate housing demand with the random group effect. Using Taiwan’s cross-sectional survey data, we found that the standard error of the estimated coefficient for the group level income variable is underestimated in the traditional unadjusted OLS specification. This finding suggests that there may be a danger of spurious regression in the traditional OLS housing demand estimation.

Suggested Citation

  • Wen-chieh Wu & Sue-Jing Lin, 2002. "Housing Demand with Random Group Effects," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 133-145.
  • Handle: RePEc:ire:issued:v:05:n:01:2002:p:133-145

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    References listed on IDEAS

    1. Borjas, George J. & Sueyoshi, Glenn T., 1994. "A two-stage estimator for probit models with structural group effects," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 165-182.
    2. Amemiya, Takeshi, 1978. "A Note on a Random Coefficients Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 793-796, October.
    3. Greenlees, John S & Zieschang, Kimberly D, 1984. "Grouping Tests for Misspecification: An Application to Housing Demand," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(2), pages 159-169, April.
    4. Chu-Chia Lin & Sue-Jing Lin, 1999. "An Estimation of Elasticities of Consumption Demand and Investment Demand for Owner-Occupied Housing in Taiwan : A Two-Period Model," International Real Estate Review, Asian Real Estate Society, vol. 2(1), pages 110-125.
    5. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
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    Cited by:

    1. Crespi John M. & Marette Stephan, 2009. "Quality, Sunk Costs and Competition," Review of Marketing Science, De Gruyter, vol. 7(1), pages 1-36, August.

    More about this item


    Housing Demand; Random Group Effect; Two-stage Estimation;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services


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