Hedonic Amenity Valuation and Housing Renovations
Real Estate Economics, Forthcoming
Posted: 22 Jul 2014
Date Written: June 23, 2014
Hedonic and repeat sales estimators are commonly used to value such important urban amenities as schools, environmental quality and access to transit. Given that property data often omits information on quality differences between same-aged homes as well as changes in structural attributes over time, researchers must assume that property renovations are uncorrelated with neighborhood amenities. We formally test if this assumption is valid by incorporating detailed data on renovations in Charlotte, NC. We begin by testing how the inclusion of minor and major home improvements influences hedonic and repeat sales indices. Results find limited bias in hedonic indices and that renovated properties are no more likely to be sold than non-renovated properties. Using the introduction of Charlotte's light rail-transit system in 2000, we estimate a positive bias of between 1.6% and 19.9% on the capitalized benefits of access to light rail due to omitted information on renovations. Our results show that a number of common data cleaning techniques used to address missing information on structural improvements may worsen this bias.
Keywords: renovations, amenity valuation
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