Alternative Approaches for Resale Housing Price Indexes

Kate Burnett-Isaacs,, Walter Diewert and Ning Huang

Microeconomics.ca working papers from Vancouver School of Economics

Abstract: The use of hedonic regression models on the sales of detached housing units is widespread in the real estate literature. However, these models do not address the need to decompose the sale price into structure and land components. In the international System of National Accounts, it is necessary to obtain separate estimates for the price and quantity of housing structures and the land that these structures sit on. The builder’s model accomplishes this decomposition but it has only been applied to Dutch and Japanese data. The paper will apply the builder’s model to data on sales of detached houses in Richmond, British Columbia to test the robustness of the model. The property price indexes generated by the builder’s model are also compared to the corresponding indexes generated by a traditional time product dummy hedonic regression model. The implied structure depreciation rates generated by both models are also compared. We find that if a sufficient number of housing characteristics are included in the hedonic regressions, the two approaches generate similar overall property price indexes and similar geometric depreciation rates. However, the two approaches do not generate similar land and structure subindexes.

Keywords: House price indexes; land and structure price indexes; hedonic regressions; net depreciation rates; System of National Accounts; the Builder’s Model (search for similar items in EconPapers)
JEL-codes: C2 C23 C43 E31 R21 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-05-08, Revised 2017-05-08
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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