IDEAS home Printed from https://ideas.repec.org/a/ire/issued/v10n022007p66-93.html
   My bibliography  Save this article

On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence

Author

Listed:
  • Charles Ka Yui Leung

    (Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong)

  • Kelvin Siu Kei Wong

    (Department of Real Estate and Construction, The University of Hong Kong, Pokfulam, Hong Kong)

  • Patrick Wai Yin Cheung

    (Department of Economics and Finance, City University of Hong Kong, Kowloon Tong, Hong Kong)

Abstract

Given the dramatic fluctuations in aggregate housing prices, this paper attempts to examine whether the implicit prices of different housing attributes are “stable.” Theoretically, this paper provides perhaps the first dynamic, general equilibrium model in which housing attributes’ implicit prices fluctuate. Empirically, this paper models the time paths of different implicit prices as auto-regressive processes by employing a hedonic pricing model on a large set of housing transaction data over a relatively long period of time. An endogenous structural break test is then performed. Except for a few attributes, structural breaks are not detected. Directions for future research are discussed.

Suggested Citation

  • Charles Ka Yui Leung & Kelvin Siu Kei Wong & Patrick Wai Yin Cheung, 2007. "On the Stability of the Implicit Prices of Housing Attributes: A Dynamic Theory and Some Evidence," International Real Estate Review, Global Social Science Institute, vol. 10(2), pages 66-93.
    • Handle: RePEc:ire:issued:v:10:n:02:2007:p:66-93
    as

    Download full text from publisher

    File URL: https://www.gssinst.org/irer/wp-content/uploads/2020/10/vol-10-no-2-on-the-stability-of-the-implicit-prices-of-housing-attributes.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christiano, Lawrence J. & Eichenbaum, Martin, 1987. "Temporal aggregation and structural inference in macroeconomics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 63-130, January.
    2. Wilhelmsson, Mats, 2002. "Household Expenditure Patterns for Housing Attributes: A Linear Expenditure System with Hedonic Prices," Journal of Housing Economics, Elsevier, vol. 11(1), pages 75-93, March.
    3. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    4. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    5. Melville L. McMillan & Bradford G. Reid & David W. Gillen, 1980. "An Extension of the Hedonic Approach for Estimating the Value of Quiet," Land Economics, University of Wisconsin Press, vol. 56(3), pages 315-328.
    6. Cheshire, Paul & Sheppard, Stephen, 1998. "Estimating the Demand for Housing, Land, and Neighbourhood Characteristics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(3), pages 357-382, August.
    7. Shunfeng Song, 1995. "Determinants of Bargaining Outcome in Single-family Housing Transactions: An Empirical Examination," Urban Studies, Urban Studies Journal Limited, vol. 32(3), pages 605-614, April.
    8. Kamhon Kan & Sunny Kai‐Sun Kwong & Charles Ka‐Yui Leung, 2004. "The Dynamics and Volatility of Commercial and Residential Property Prices: Theory and Evidence," Journal of Regional Science, Wiley Blackwell, vol. 44(1), pages 95-123, February.
    9. Do, A Quang & Wilbur, Robert W & Short, James L, 1994. "An Empirical Examination of the Externalities of Neighborhood Churches on Housing Values," The Journal of Real Estate Finance and Economics, Springer, vol. 9(2), pages 127-136, September.
    10. Christiano, Lawrence J & Eichenbaum, Martin & Marshall, David, 1991. "The Permanent Income Hypothesis Revisited," Econometrica, Econometric Society, vol. 59(2), pages 397-423, March.
    11. Ľluboš Pástor & Robert F. Stambaugh, 2001. "The Equity Premium and Structural Breaks," Journal of Finance, American Finance Association, vol. 56(4), pages 1207-1239, August.
    12. Jeffrey A. Miron, 1996. "The Economics of Seasonal Cycles," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133237, December.
    13. Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996. "Cointegration tests in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 70(1), pages 187-220, January.
    14. David M. Brasington, 1999. "Which Measures of School Quality Does the Housing Market Value?," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 395-414.
    15. Nancy Wallace, 1996. "Hedonic-based price indexes for housing: theory, estimation, and index construction," Economic Review, Federal Reserve Bank of San Francisco, pages 34-48.
    16. Straszheim, Mahlon R, 1974. "Hedonic Estimation of Housing Market Prices: A Further Comment," The Review of Economics and Statistics, MIT Press, vol. 56(3), pages 404-406, August.
    17. Stephen Malpezzi, "undated". "Hedonic Pricing Models: A Selective and Applied Review," Wisconsin-Madison CULER working papers 02-05, University of Wisconsin Center for Urban Land Economic Research.
    18. Charles K. Y. Leung & Garion C. K. Lau & Youngman C. F. Leong, 2002. "Testing Alternative Theories of the Property Price-Trading Volume Correlation," Journal of Real Estate Research, American Real Estate Society, vol. 23(3), pages 253-264.
    19. Charles Leung & Youngman Leong & Siu Wong, 2006. "Housing Price Dispersion: An Empirical Investigation," The Journal of Real Estate Finance and Economics, Springer, vol. 32(3), pages 357-385, May.
    20. Peter F. Colwell & Gene Dilmore, 1999. "Who Was First? An Examination of an Early Hedonic Study," Land Economics, University of Wisconsin Press, vol. 75(4), pages 620-626.
    21. Anderson, G J, 1991. "Expenditure Allocation across Nondurables, Services, Durables and Savings: An Empirical Study of Separability in the Long Run," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 153-168, April-Jun.
    22. Woo, Chi-Keung & Kwok, Raymond H. F., 1994. "Vanity, superstition and auction price," Economics Letters, Elsevier, vol. 44(4), pages 389-395, April.
    23. Mr. Sergio Rebelo & Ms. Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 2001/085, International Monetary Fund.
    24. Charles Ka Yui Leung & Youngman Chun Fai Leong & Ida Yin Sze Chan, 2002. "TOM: Why Isn’t Price Enough?," International Real Estate Review, Global Social Science Institute, vol. 5(1), pages 91-115.
    25. Charles Ka Yui Leung, 2001. "Relating International Trade to the Housing Market," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 328-335, June.
    26. Goodman, Allen C. & Kawai, Masahiro, 1982. "Permanent income, hedonic prices, and demand for housing: New evidence," Journal of Urban Economics, Elsevier, vol. 12(2), pages 214-237, September.
    27. Charles Leung, 2007. "Equilibrium Correlations of Asset Price and Return," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 233-256, February.
    28. Hansen, Bruce E, 1997. "Approximate Asymptotic P Values for Structural-Change Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 60-67, January.
    29. Raj, Baldev, 1992. "International Evidence on Persistence in Output in the Presence of an Episodic Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(3), pages 281-293, July-Sept.
    30. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    31. Shilling, James D. & Sirmans, C. F. & Benjamin, John D., 1989. "Flood insurance, wealth redistribution, and urban property values," Journal of Urban Economics, Elsevier, vol. 26(1), pages 43-53, July.
    32. Witte, Ann D & Sumka, Howard J & Erekson, Homer, 1979. "An Estimate of a Structural Hedonic Price Model of the Housing Market: An Application of Rosen's Theory of Implicit Markets," Econometrica, Econometric Society, vol. 47(5), pages 1151-1173, September.
    33. 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..
    34. Mok, Henry M K & Chan, Patrick P K & Cho, Yiu-sun, 1995. "A Hedonic Price Model for Private Properties in Hong Kong," The Journal of Real Estate Finance and Economics, Springer, vol. 10(1), pages 37-48, January.
    35. Leung, Charles Ka Yui, 2001. "Relating International Trade to the Housing Market," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 328-335, June.
    36. Edelstein, Robert H. & Lum, Sau Kim, 2004. "House prices, wealth effects, and the Singapore macroeconomy," Journal of Housing Economics, Elsevier, vol. 13(4), pages 342-367, December.
    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. Charles Ka Yui Leung & Patrick Wai Yin Cheung & Edward Chi Ho Tang, 2013. "Financial Crisis and the Co-movements of Housing Sub-markets: Do relationships change after a crisis?," International Real Estate Review, Global Social Science Institute, vol. 16(1), pages 68-118.
    2. 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.
    3. Charles Ka Yui Leung & Edward Chi Ho Tang, 2015. "Speculating China Economic Growth through Hong Kong? Evidence from Stock Market IPOs and Real Estate Markets," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 45-87.
    4. Charles Ka Yui Leung & Patrick Wai Yin Cheung & Erica Jiajia Ding, 2008. "Intra-metropolitan Office Price and Trading Volume Dynamics: Evidence from Hong Kong," International Real Estate Review, Global Social Science Institute, vol. 11(2), pages 47-74.
    5. Ka Shing Cheung & Chung Yim Yiu & Chuyi Xiong, 2021. "Housing Market in the Time of Pandemic: A Price Gradient Analysis from the COVID-19 Epicentre in China," JRFM, MDPI, vol. 14(3), pages 1-17, March.

    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. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Charles Ka Yui LEUNG, 2022. "Housing and Macroeconomics," ISER Discussion Paper 1197, Institute of Social and Economic Research, Osaka University.
    3. 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.
    4. Leung, Charles, 2004. "Macroeconomics and housing: a review of the literature," Journal of Housing Economics, Elsevier, vol. 13(4), pages 249-267, December.
    5. Charles Ka Yui Leung & Joe Cho Yiu Ng & Edward Tang, 2020. "Why is the Hong Kong Housing Market Unaffordable? Some Stylized Facts and Estimations," Globalization Institute Working Papers 380, Federal Reserve Bank of Dallas.
    6. Charles Ka Yui Leung & Patrick Wai Yin Cheung & Edward Chi Ho Tang, 2013. "Financial Crisis and the Co-movements of Housing Sub-markets: Do relationships change after a crisis?," International Real Estate Review, Global Social Science Institute, vol. 16(1), pages 68-118.
    7. Charles Leung, 2007. "Equilibrium Correlations of Asset Price and Return," The Journal of Real Estate Finance and Economics, Springer, vol. 34(2), pages 233-256, February.
    8. Charles Ka Yui Leung & Edward Chi Ho Tang, 2015. "Speculating China Economic Growth through Hong Kong? Evidence from Stock Market IPOs and Real Estate Markets," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 45-87.
    9. Radmila Datsenko, 2013. "House Price Dynamics : The French Case," Post-Print halshs-03373717, HAL.
    10. Leech, D. & Campos, E., 2000. "Is Comprehensive Education Really Free? A Study of the Effects of Secondary School Admissions Policies on House Prices," The Warwick Economics Research Paper Series (TWERPS) 581, University of Warwick, Department of Economics.
    11. Palmquist, Raymond B., 2006. "Property Value Models," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 16, pages 763-819, Elsevier.
    12. Leung, Tin Cheuk & Tsang, Kwok Ping, 2013. "Anchoring and loss aversion in the housing market: Implications on price dynamics," China Economic Review, Elsevier, vol. 24(C), pages 42-54.
    13. Alexandre Tangerini & Nils Soguel, 2005. "Evaluation monétaire de la qualité du paysage. Monetary valuation of the landscape quality," Urban/Regional 0507002, University Library of Munich, Germany.
    14. Wang, Ping & Xie, Danyang, 2014. "Housing Dynamics: Theory Behind Empirics," MPRA Paper 59057, University Library of Munich, Germany.
    15. Alexandre Tangerini & Nils Soguel, 2005. "Evaluation monétaire de la qualité de paysage / Evaluation of the landscape quality," Urban/Regional 0507007, University Library of Munich, Germany.
    16. Brasington, D. M., 2003. "The supply of public school quality," Economics of Education Review, Elsevier, vol. 22(4), pages 367-377, August.
    17. Celia Bilbao-Terol, 2009. "Impacts of an Iron and Steel Plant on Residential Property Values," European Planning Studies, Taylor & Francis Journals, vol. 17(9), pages 1421-1436, September.
    18. Shunfeng Song, 1998. "Home buyers' characteristics and selling prices," Applied Economics Letters, Taylor & Francis Journals, vol. 5(1), pages 11-14.
    19. Mi Diao & Yi Fan & Tien Foo Sing, 2018. "Demand restrictions; government interventions; resale public housing market; private housing market; housing wealth," ERES eres2018_32, European Real Estate Society (ERES).
    20. Amelia Bilbao & Celia Bilbao & José M. Labeaga, "undated". "The excess burden associated to characteristics of the goods: Application to housing demand," Working Papers 2005-09, FEDEA.

    More about this item

    Keywords

    hedonic pricing; structural break; evolution of valuation; housing attributes;
    All these keywords.

    JEL classification:

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

    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:ire:issued:v:10:n:02:2007:p:66-93. 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: IRER Graduate Assistant/Webmaster (email available below). General contact details of provider: https://www.gssinst.org/gssinst/index.html .

    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.