Heterogeneous Households and Market Segmentation in a Hedonic Framework

Martijn Droes, Martin Hoesli and Steven Bourassa

ERES from European Real Estate Society (ERES)

Abstract: This paper explores Rosen’s (1974) suggestion that within the hedonic framework there are natural tendencies toward market segmentation. We show that market segmentation can be estimated on the basis of an augmented hedonic model in which marginal prices are separated by household characteristics into different classes. The classes can either be exogenously defined or endogenously determined based on an unsupervised machine learning algorithm or a latent class formulation. We illustrate the usefulness of these methods using American Housing Survey data for Louisville and show that there are distinct housing market segments within the Louisville metropolitan area based on income and family structure.

Keywords: Hedonic Model; heterogeneous households; latent class; Machine Learning; Market Segmentation (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2019-01-01
New Economics Papers: this item is included in nep-big and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2019_218

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