Separating the Age Effect from a Repeat Sales Index: Land and Structure Decomposition

Sk Wong, Kw Chau, K Karato and Chihiro Shimizu

No 5, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Since real estate is heterogeneous and infrequently traded, the repeat sales model has become a popular method to estimate a real estate price index. However, the model fails to adjust for depreciation, as age and time between sales have an exact linear relationship. This paper proposes a new method to estimate an age-adjusted repeat sales index by decomposing property value into land and structure components. As depreciation is more relevant to the structure than land, the property’s depreciation rate should depend on the relative size of land and structure. The larger the land component, the lower is the depreciation rate of the property. Based on housing transactions data from Hong Kong and Tokyo, we find that Hong Kong has a higher depreciation rate (assuming a fixed structure-to-property value ratio), while the resulting age adjustment is larger in Tokyo because its structure component has grown larger from the first to second sales.

Pages: 15 pages
Date: 2013-12
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/26023/wp005.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:remfce:5

Access Statistics for this paper

More papers in HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().