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Measuring Diverging House Prices

Author

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  • Jan Rouwendal

    () (VU Amsterdam, The Netherlands)

  • Mark van Duijn

    () (University of Groningen, The Netherlands)

Abstract

Real estate price indexes summarize the evolution of all property prices in a single number, while actual price movements often differ among market segments. We develop a methodology for measuring prices as a flexible function of a one-dimensional quality measure – housing services for residential real estate - and apply it to test for the common assumption of identical price movements in all parts of the market. Our approach is based on a generalization of the familiar (constant unit price) Muth model to a situation of in which the unit price of housing services may depend on the quality level. We apply the method to a rich set of transaction data referring to Amsterdam in the period 1985-2013. We estimate an indicator of housing services based only on the ranking of house prices in postcode areas during periods of three months and compare the results to conventional hedonic price equations that embody the assumption of a unit price for housing services that does not depend on quality. We develop a test for a constant price per unit of housing services and reject it on the basis of price differences occurring over time as well as over space.

Suggested Citation

  • Jan Rouwendal & Mark van Duijn, 2017. "Measuring Diverging House Prices," Tinbergen Institute Discussion Papers 17-028/VIII, Tinbergen Institute, revised 16 Apr 2018.
  • Handle: RePEc:tin:wpaper:20170028
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    References listed on IDEAS

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    1. McMillen, Daniel P., 2008. "Changes in the distribution of house prices over time: Structural characteristics, neighborhood, or coefficients?," Journal of Urban Economics, Elsevier, vol. 64(3), pages 573-589, November.
    2. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, April.
    3. Guerrieri, Veronica & Hartley, Daniel & Hurst, Erik, 2013. "Endogenous gentrification and housing price dynamics," Journal of Public Economics, Elsevier, vol. 100(C), pages 45-60.
    4. Joachim Zietz & Emily Zietz & G. Sirmans, 2008. "Determinants of House Prices: A Quantile Regression Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 37(4), pages 317-333, November.
    5. 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.
    6. Beggs, S. & Cardell, S. & Hausman, J., 1981. "Assessing the potential demand for electric cars," Journal of Econometrics, Elsevier, vol. 17(1), pages 1-19, September.
    7. Rouwendal, Jan, 1998. "On Housing Services," Journal of Housing Economics, Elsevier, vol. 7(3), pages 218-242, September.
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    More about this item

    Keywords

    housing price; housing quality; Muth model; affordability;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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