Measuring Diverging House Prices

Tinbergen Institute Discussion Paper 2017-028/VIII

46 Pages Posted: 28 Feb 2017 Last revised: 29 Apr 2018

See all articles by Jan Rouwendal

Jan Rouwendal

VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Mark van Duijn

University of Groningen, Faculty of Spatial Sciences, Department of Economic Geography and Population Research Centre

Date Written: April 16, 2018

Abstract

Real estate price indexes summarize the evolution of all property prices in a single number, while actual price movements often differ among market segments. We develop a methodology for measuring prices as a flexible function of a one-dimensional quality measure – housing services for residential real estate - and apply it to test for the common assumption of identical price movements in all parts of the market. Our approach is based on a generalization of the familiar (constant unit price) Muth model to a situation of in which the unit price of housing services may depend on the quality level. We apply the method to a rich set of transaction data referring to Amsterdam in the period 1985-2013. We estimate an indicator of housing services based only on the ranking of house prices in postcode areas during periods of three months and compare the results to conventional hedonic price equations that embody the assumption of a unit price for housing services that does not depend on quality. We develop a test for a constant price per unit of housing services and reject it on the basis of price differences occurring over time as well as over space.

Keywords: housing price, housing quality, Muth model, affordability

JEL Classification: R31, R21, D40

Suggested Citation

Rouwendal, Jan and van Duijn, Mark, Measuring Diverging House Prices (April 16, 2018). Tinbergen Institute Discussion Paper 2017-028/VIII, Available at SSRN: https://ssrn.com/abstract=2924308 or http://dx.doi.org/10.2139/ssrn.2924308

Jan Rouwendal (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Mark Van Duijn

University of Groningen, Faculty of Spatial Sciences, Department of Economic Geography and Population Research Centre ( email )

P.O. Box 800
Groningen, 9700 AV
Netherlands

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