Using Locational Equilibrium Models to Evaluate Housing Price Indexes

23 Pages Posted: 30 Sep 2000 Last revised: 17 Apr 2012

See all articles by Holger Sieg

Holger Sieg

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

V. Kerry Smith

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

H. Spencer Banzhaf

Georgia State University - Department of Economics; PERC - Property and Environment Research Center; National Bureau of Economic Research (NBER)

Randy Walsh

Duke University, Fuqua School of Business-Economics Group

Date Written: October 2000

Abstract

This paper analyses how the properties of locational equilibrium models can be used to evaluate approaches for constructing price indexes for heterogeneous houses. Housing markets play a key role in locational equilibrium models. Prices for houses determine that implicit costs that households bear when locating in a given community. We evaluate a variety of price indexes all relying on hedonic models for predicting interjurisdictional housing prices. The application uses a unique panel data set of housing transactions in Southern California. The rank predictions of different models are robust with respect to the hedonic model and the composite commodity definition used in aggregation. They do not depend significantly on the spatial or temporal definitions used to define the choice set of local housing markets. Finally, housing price estimates are strongly correlated with education and environmental amenities.

Suggested Citation

Sieg, Holger and Smith, V. Kerry and Banzhaf, H. Spencer and Walsh, Randy, Using Locational Equilibrium Models to Evaluate Housing Price Indexes (October 2000). NBER Working Paper No. w7934. Available at SSRN: https://ssrn.com/abstract=244032

Holger Sieg (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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V. Kerry Smith

Arizona State University (ASU) - Economics Department ( email )

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National Bureau of Economic Research (NBER)

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H. Spencer Banzhaf

Georgia State University - Department of Economics ( email )

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Randy Walsh

Duke University, Fuqua School of Business-Economics Group

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