Land, Structure and Depreciation

37 Pages Posted: 19 Apr 2017

See all articles by Marc Francke

Marc Francke

University of Amsterdam - Faculty of Economics and Business (FEB); Ortec Finance

Alex Van de Minne

University of Connecticut - Department of Finance

Date Written: Summer 2017

Abstract

We introduce a hedonic price model that enables us to disentangle the value of a property into the value of land and the value of structure. For given reconstruction costs, we are able to estimate the impact of physical deterioration, functional obsolescence and vintage effects on the structure and the impact of time on sale (and external obsolescence) on the land value simultaneously. Our findings show that maintenance has a substantial impact on the rate of physical deterioration. After 50 years of not or barely maintaining a home, a typical structure has lost around 43% of its value. In contrast, maintaining a home very well results in virtually no physical deterioration in the long run.

Suggested Citation

Francke, Marc and Van de Minne, Alex, Land, Structure and Depreciation (Summer 2017). Real Estate Economics, Vol. 45, Issue 2, pp. 415-451, 2017, Available at SSRN: https://ssrn.com/abstract=2954813 or http://dx.doi.org/10.1111/1540-6229.12146

Marc Francke (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

HOME PAGE: http://www.uva.nl/en/contact/staff/item/m.k.francke.html?f=francke

Ortec Finance ( email )

Orly Centre
Barajasweg 10
Amsterdam, 1043 CP
Netherlands
+ 31 20 7009 700 (Phone)
+ 31 20 7009 701 (Fax)

HOME PAGE: http://www.ortec-finance.com

Alex Van de Minne

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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