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Article
Publication date: 1 March 2013

Joseph Falzon and David Lanzon

The paper aims to describe, construct, and compare alternative price indices for real estate in Malta over the period 1980‐2010.

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Abstract

Purpose

The paper aims to describe, construct, and compare alternative price indices for real estate in Malta over the period 1980‐2010.

Design/methodology/approach

The paper utilises the technique of hedonic regression analysis to construct four hedonic price indices. One of the constructed indices is based the unconstrained hedonic methodology. Two other indices are variants of the constrained hedonic technique, while the fourth consists of an imputed hedonic index. The hedonic indices are then compared to other 12 conventional indices, namely the Laspeyres, Paasche and Fisher indices (constant weight and chain linked) that are constructed by utilizing the mean and median house prices pertaining to 14 different types of houses.

Findings

All indices are found to move closely together, growing between six and seven times between 1980 and 2010. The average annual compound growth rate of the 16 indices was found to be 6.5126 percent. The paper also shows how the estimated hedonic coefficients can be used to construct regional price indices for different combinations of housing characteristics.

Originality/value

The paper builds on previous work related to house prices in Malta. Its main contribution is the construction of hedonic indices that are based on advertised prices that span over a relatively long period of 31 years, together with the construction of constant weight and chain linked Laspeyres, Paasche and Fisher indices.

Details

International Journal of Housing Markets and Analysis, vol. 6 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 30 September 2014

Anthony Owusu-Ansah and Raymond Talinbe Abdulai

The purpose of this paper is to test the accuracy of the explicit time variable (ETV) and the strictly cross-sectional (SCS) hedonic models when constructing house price

Abstract

Purpose

The purpose of this paper is to test the accuracy of the explicit time variable (ETV) and the strictly cross-sectional (SCS) hedonic models when constructing house price indices in developing markets using Ghana as a case study.

Design/methodology/approach

The quantitative research methodology is adopted where the accuracy of the two hedonic models used in the construction of house price indices is examined using the mean squared error (MSE) and out-of-sample technique. Yearly indices are constructed for each of the models using 60 per cent of the sample data and 40 per cent is used to forecast house prices for each observations based on which the MSEs are calculated.

Findings

The two models produce similar house price trend but the SCS model is more volatile. The ETV model produces the lower MSE, suggesting that it is better to pool data together and includes time dummies (ETV) to estimate indices rather than running separate regressions (SCS) to estimate the index. Using the Morgan–Granger–Newbold test, it is found that indeed the difference between the forecast errors of the two models are statistically significant on a 1 per cent level confirming the accuracy of the ETV model over the SCS model.

Practical implications

This paper has produced convincing results recommending the use of the ETV hedonic model to construct house price indices which is of use to practitioners and academics.

Originality/value

The introduction of financial products like the property derivatives and home equity insurances to the financial market calls for accurate and robust property price indices and the hedonic method is mostly used to construct these indices. While there have been a lot of test conducted as to which variant of the hedonic method to use in developed markets, little is known about the developing markets. This paper contributes to fill these gaps.

Details

International Journal of Housing Markets and Analysis, vol. 7 no. 4
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 26 October 2010

Marta Widłak and Emilia Tomczyk

The aim of this paper is to present estimation results of hedonic price models as well as housing price indices for the Warsaw secondary market.

Abstract

Purpose

The aim of this paper is to present estimation results of hedonic price models as well as housing price indices for the Warsaw secondary market.

Design/methodology/approach

Three direct methods of constructing a hedonic price index and four indices that allow for quality adjustment are presented. The paper also discusses theoretical issues related to the estimation and interpretation of hedonic models.

Findings

It is shown that the imputation and the time dummy variable indices are subject to less variation than the characteristic price index. It is also shown that in comparison to the mean and the median, hedonic indices are less variable, which can be interpreted as partial control for quality changes in dwellings sold.

Practical implications

As this research project represents one of the first attempts of hedonic modelling applied to the Polish housing market, its results may be employed by appraisers to gain insight into behaviour of the Warsaw housing market. Practical implications focus on reliable measurement of house price dynamics in Poland. This paper supplies an appropriate methodology for addressing this question and offers empirical solutions.

Originality/value

Employment of hedonic models for construction of quality‐adjusted housing price indices has not yet been explored in Poland. The theoretical and practical aspects of hedonic indices presented in the paper open promising directions for the development of Polish statistics of real estate prices.

Details

Journal of European Real Estate Research, vol. 3 no. 3
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 21 February 2019

Gaetano Lisi

The purpose of this paper is to provide an integrated approach that combines the two methods usually used in the real estate appraisals, namely, the income capitalisation…

Abstract

Purpose

The purpose of this paper is to provide an integrated approach that combines the two methods usually used in the real estate appraisals, namely, the income capitalisation method and the hedonic model.

Design/methodology/approach

In order to pull out the link between the income capitalisation approach and the hedonic model, the standard hedonic price function is introduced into the basic model of income capitalisation instead of the house market value. It follows that, from the partial derivative, a direct relation between hedonic prices and discount rate can be obtained. Finally, by using the close relationship between income capitalisation and direct capitalisation, a mathematical relation between hedonic prices and capitalisation rate is also obtained.

Findings

The developed method allows to estimate the capitalisation rate using only hedonic prices. Indeed, selling and hedonic prices incorporate all of the information required to correctly estimate the capitalisation rate. Furthermore, given the close relation among going-in and going-out capitalisation rates and discount rate, the proposed method could also be useful for determining both the going-out capitalisation rate and the discount rate.

Practical implications

Obviously, it is always preferable to estimate the capitalisation rate by just using comparable transactional data. Nevertheless, the method developed in this paper is especially useful when: the rental income data are missing and/or not entirely reliable; the data on rental income and house price are related to different homes; the capitalisation rate, in fact, should compare the rent and value of identical homes. In these cases, therefore, the method can be a valuable alternative to direct estimation.

Originality/value

The large and important literature on real estate economics and real estate appraisal neglects the relationship between hedonic prices and capitalisation rate, thus considering the hedonic model and the income capitalisation approach as two separate and alternative methods. This paper, instead, shows that integration is possible and relatively simple.

Details

Journal of Property Investment & Finance, vol. 37 no. 3
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 6 February 2017

Porfirio Guevara, Robert Hill and Michael Scholz

This study aims to show how hedonic methods can be used to compare the performance of the public and private sector housing markets in Costa Rica.

Abstract

Purpose

This study aims to show how hedonic methods can be used to compare the performance of the public and private sector housing markets in Costa Rica.

Design/methodology/approach

Hedonic price indexes are computed using the adjacent-period method. Average housing quality is measured by comparing hedonic and median price indexes. The relative performance of the public and private sector residential construction is compared by estimating separate hedonic models for each sector. A private sector price is then imputed for each house built in the public sector, and a public sector price is imputed for each house built in the private sector.

Findings

The real quality-adjusted price of private housing rose by 12 per cent between 2000 and 2013, whereas the price of private housing rose by 9 per cent. The average quality of private housing rose by 45 per cent, whereas that of public housing fell by 18 per cent. Nevertheless, the hedonic imputation analysis reveals that public housing could not be produced more cheaply in the private sector.

Social implications

The quality of public housing has declined over time. The hedonic analysis shows that the decline is not because of a lack of competition between construction firms in the public sector. An alternative demand side explanation is provided.

Originality/value

This study applies hedonic methods in novel ways to compare the relative performance of the public and private housing sectors in Costa Rica. The results shed new light on the effectiveness of public sector housing programs.

Details

International Journal of Housing Markets and Analysis, vol. 10 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 29 June 2010

Concha R. Neeley, Kyeong Sam Min and Pamela A. Kennett‐Hensel

This paper aims to evaluate the relationships among consumer expertise, hedonic orientation, price consciousness, and consumption using wine as the focal product. While…

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3521

Abstract

Purpose

This paper aims to evaluate the relationships among consumer expertise, hedonic orientation, price consciousness, and consumption using wine as the focal product. While these variables' impact on decision making within this industry have been examined in isolation, this is believed to be the first study marrying these hedonic and non‐hedonic characteristics.

Design/methodology/approach

Data were collected from a convenience sample of wine purchasers consisting of faculty, staff and upper level students at a major southwestern university using a 95 item questionnaire. In total, 241 usable surveys were included in the analysis.

Findings

The findings indicate support for all five hypothesized relationships. The importance of hedonic orientation as a psychographic characteristic emerges. The relationship between expertise and consumption is moderated by hedonic orientation as is the relationship between expertise and price consciousness. Price consciousness mediates the relationship between expertise and consumption, but only for those consumers who have a high hedonic orientation.

Research limitations/implications

The results may not be generalizable across all consumers given the convenience nature of the sample. Additionally only one product category, wine, is included.

Originality/value

This study examines wine consumers' hedonic orientation and its impact on ultimate consumption. Further, this study is also valuable to the field of consumer behavior through development of a scale to capture the dimensions underlying the construct of hedonic orientation. Previous researchers have established profiles of persons who engage in hedonic consumption, but have not assessed an individual's hedonic orientation.

Details

Journal of Consumer Marketing, vol. 27 no. 4
Type: Research Article
ISSN: 0736-3761

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Article
Publication date: 9 May 2018

Debarpita Roy

This paper aims to understand housing demand of urban Indian households in terms of housing and household-level characteristics. Because a house is a bundle of certain…

Abstract

Purpose

This paper aims to understand housing demand of urban Indian households in terms of housing and household-level characteristics. Because a house is a bundle of certain characteristics which vary across houses, each characteristic has an implicit price. Finding this implicit price for certain important characteristics is the first objective of this study. The second objective of the paper is to compute the income elasticity and price elasticity of housing demand for these cities.

Design/methodology/approach

To achieve comparable estimates, household-level data from India’s National Sample Survey Organisation housing surveys for the years 2002 and 2008-2009 have been used. A hedonic price function is estimated using ordinary least squares (OLS) and Box-Cox functional forms to estimate the implicit prices of housing characteristics. This exercise is attempted for owned and rented houses separately. Demand function required for computing the elasticities, uses the hedonic price index derived from the implicit prices and household characteristics.

Findings

The study finds housing demand to be income elastic and price inelastic for the six cities across both the time periods.

Originality/value

Firstly, this study includes housing characteristics such as individual access to drinking water, modern sanitation facility, separate kitchen, condition of the structure, existence of a road with street light and whether the house is in a slum or non-slum area in the hedonic price function. These variables were not used in any of the earlier studies pertaining to India. Secondly, it uses the Box-Cox non-linear form to derive the hedonic price function, a specification not used earlier. Thirdly, this is the first study analysing housing demand across the six largest Indian cities.

Details

International Journal of Housing Markets and Analysis, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 6 February 2009

Mario J. Miranda

The purpose of this paper is to give retailers an insight into consumers' capacity for feeling pleasure associated with specific purchase motivations across different…

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5348

Abstract

Purpose

The purpose of this paper is to give retailers an insight into consumers' capacity for feeling pleasure associated with specific purchase motivations across different product categories.

Design/methodology/approach

A hedonic regression model was estimated from data collected from shoppers in shopping malls that enabled the generation of implicit prices of each constituent purchasing motive.

Findings

Hedonic values of consumer motivations vary for different products categories. Convenience items, like bread, allow little scope for self‐congruence, whereas shampoo offers significant scope for pleasurable emotive appeals to boost consumers' status enhancement and social image. This study identified opportunities to create good feelings for the purchase of both bread and shampoos, by engaging shoppers' attention on themes relating to social referents and family values. Shopping items like apparel and specialty items like cosmetics offer prospects of titillating consumer motives of status and self‐image enhancement, respectively, by engaging them with reputable merchandise in reputable settings.

Research limitations/implications

No insight was sought on the hedonic value of consumers' buying motivations of impulse purchases.

Practical implications

Products that are used in public (apparel) or whose consumption outcome is manifest in public (shampoos and cosmetics), have purchase motivations that are susceptible to hedonic appeals. On the other hand, only a few purchase motivations for products like bread, with limited “public face”, have some hedonic value. The results of this study inform retailers on choice of purchase motivations to direct engagement appeals in order to generate emotional excitement. Getting consumers to fantasize on themes relating to relevant purchasing motives could facilitate their purchase choice.

Originality/value

Targeting consumers' preferred urges is an efficient way to stimulate buying intentions.

Details

Marketing Intelligence & Planning, vol. 27 no. 1
Type: Research Article
ISSN: 0263-4503

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Article
Publication date: 10 June 2021

Abhijat Arun Abhyankar and Harish Kumar Singla

The purpose of this study is to compare the predictive performance of the hedonic multivariate regression model with the probabilistic neural network (PNN)-based general…

Abstract

Purpose

The purpose of this study is to compare the predictive performance of the hedonic multivariate regression model with the probabilistic neural network (PNN)-based general regression neural network (GRNN) model of housing prices in “Pune-India.”

Design/methodology/approach

Data on 211 properties across “Pune city-India” is collected. The price per square feet is considered as a dependent variable whereas distances from important landmarks such as railway station, fort, university, airport, hospital, temple, parks, solid waste site and stadium are considered as independent variables along with a dummy for amenities. The data is analyzed using a hedonic type multivariate regression model and GRNN. The GRNN divides the entire data set into two sets, namely, training set and testing set and establishes a functional relationship between the dependent and target variables based on the probability density function of the training data (Alomair and Garrouch, 2016).

Findings

While comparing the performance of the hedonic multivariate regression model and PNN-based GRNN, the study finds that the output variable (i.e. price) has been accurately predicted by the GRNN model. All the 42 observations of the testing set are correctly classified giving an accuracy rate of 100%. According to Cortez (2015), a value close to 100% indicates that the model can correctly classify the test data set. Further, the root mean square error (RMSE) value for the final testing for the GRNN model is 0.089 compared to 0.146 for the hedonic multivariate regression model. A lesser value of RMSE indicates that the model contains smaller errors and is a better fit. Therefore, it is concluded that GRNN is a better model to predict the housing price functions. The distance from the solid waste site has the highest degree of variable senstivity impact on the housing prices (22.59%) followed by distance from university (17.78%) and fort (17.73%).

Research limitations/implications

The study being a “case” is restricted to a particular geographic location hence, the findings of the study cannot be generalized. Further, as the objective of the study is restricted to just to compare the predictive performance of two models, it is felt appropriate to restrict the scope of work by focusing only on “location specific hedonic factors,” as determinants of housing prices.

Practical implications

The study opens up a new dimension for scholars working in the field of housing prices/valuation. Authors do not rule out the use of traditional statistical techniques such as ordinary least square regression but strongly recommend that it is high time scholars use advanced statistical methods to develop the domain. The application of GRNN, artificial intelligence or other techniques such as auto regressive integrated moving average and vector auto regression modeling helps analyze the data in a much more sophisticated manner and help come up with more robust and conclusive evidence.

Originality/value

To the best of the author’s knowledge, it is the first case study that compares the predictive performance of the hedonic multivariate regression model with the PNN-based GRNN model for housing prices in India.

Details

International Journal of Housing Markets and Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 1 January 2021

Gaetano Lisi

The aim of this education briefing is to comment upon how basic hedonic pricing models for the valuation of property can be expanded and developed. In this case, the…

Abstract

Purpose

The aim of this education briefing is to comment upon how basic hedonic pricing models for the valuation of property can be expanded and developed. In this case, the briefing illustrates the use of the new economic approach to the analysis of housing markets, namely the search-and-matching models.

Design/methodology/approach

This education briefing discusses the connection of two important economic theories: the hedonic price theory and the search-and-matching theory.

Findings

This education briefing gives an example of a (non-linear) form of the hedonic price function.

Practical implications

In cases of mass appraisals, hedonic pricing models can provide a broad indication of value across submarkets and this education briefing demonstrates a theoretical model that can be used to provide a theoretical groundwork for the use of a concave hedonic price function in empirical estimates.

Originality/value

This education briefing shows how basic hedonic pricing models can be enhanced by a search-and-matching approach to determine property values.

Details

Journal of Property Investment & Finance, vol. 40 no. 1
Type: Research Article
ISSN: 1463-578X

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