Property Renovations and Their Impact on House Price Index Construction

Alexander Bogin and William Doerner

No 17-02, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: This paper provides the first wide-scale analysis of property renovation bias in repeat-sales house price indices across a multitude of U.S. geographies. Property improvements frequently lead to positive quality drift. In local markets, omitting information on property improvements can bias index estimates upwards. Bias often varies in a predictable manner and can distort valuations by as much as 15 percent in the central districts of large cities. This systematic variation in bias is partially a function of the disparate concentration of renovation activity with property improvements occurring more frequently in denser areas. The distortionary effect of not accounting for property renovations tends to decline outside of downtown areas and is generally negligible in smaller cities (populations below 500,000).

Keywords: property renovations; house price indices; repeat-sales approach (search for similar items in EconPapers)
JEL-codes: C43 C55 C58 R30 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-03
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (1)

Published in Journal of Real Estate Research, 2019, volume 41, number 2, pages 249-283

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Related works:
Journal Article: Property Renovations and Their Impact on House Price Index Construction (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hfa:wpaper:17-02

DOI: 10.1080/10835547.2019.12091526

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