Comparing House Prices Across Regions and Time: An Hedonic Approach

Robert Hill () and Daniel Melser

No 2007-33, Discussion Papers from School of Economics, The University of New South Wales

Abstract: Panel hedonic comparisons can be made using the region-time-dummy method. This method is a natural extension of the well known time-dummy and region-dummy methods which have been used extensively in the hedonic literature. We show that these methods are all affected by substitution bias, which can seriously distort their results. We propose an alternative approach that is free of substitution bias which builds up panel comparisons from bilateral building blocks using the hedonic imputation method. This approach is very flexible. We consider a number of variants on this method, all of which are likely to be improvements on the unconstrained region-time-dummy method. We illustrate our findings using data for 14 regions in Sydney over a six year period. We find clear evidence of bias in the region-time-dummy results as well as in simple average measures such as the median that fail to adjust for quality change. For these reasons we favor the hedonic imputations approach.

Keywords: Hedonic regression; Quality adjustment; Housing; Price index; Substitution bias; Multilateral indexes (search for similar items in EconPapers)
JEL-codes: C43 E31 O47 R31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-11
New Economics Papers: this item is included in nep-geo, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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