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A Hedonic Housing Model for Macroprudential Policy

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  • Onundur Pall Ragnarsson

Abstract

I examine a granular dataset on residential real estate transactions, both sales and rental, in Iceland’s main urban area, provide descriptive statistics for both markets and develop a hedonic model of the sales market multi-dwelling segment. Main findings are: (1) An average quality difference of 8.8% between sold and rented apartments suggests bias in a non-quality adjusted price-to-rent ratio over the period 2011-2022. Asymmetric quality developments over time in the sales and rental markets also suggest time-varying quality-bias. (2) Accumulated bias in a CPI-deflated non-quality adjusted index for the greater Reykjavík area multi-dwelling sales market, from 2007 to 2024, compared to a quality-adjusted index, is 3.7%. (3) The estimated time-varying new house premium can provide insight into housing sales market supply and demand conditions and aid the identification of housing bubbles. (4) A hedonic price-to-building cost ratio shows different short-run dynamics than a non-quality adjusted ratio.

Suggested Citation

  • Onundur Pall Ragnarsson, 2025. "A Hedonic Housing Model for Macroprudential Policy," Economics wp99, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp99
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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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