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Article
Publication date: 28 September 2021

Olga Filippova, Jeremy Gabe and Michael Rehm

Automated valuation models (AVMs) are statistical asset pricing models omnipresent in residential real estate markets, where they inform property tax assessment, mortgage…

Abstract

Purpose

Automated valuation models (AVMs) are statistical asset pricing models omnipresent in residential real estate markets, where they inform property tax assessment, mortgage underwriting and marketing. Use of these asset pricing models outside of residential real estate is rare. The purpose of the paper is to explore key characteristics of commercial office lease contracts and test an application in estimating office market rental prices using an AVM.

Design/methodology/approach

The authors apply a semi-log ordinary least squares hedonic regression approach to estimate either contract rent or the total costs of occupancy (TOC) (“grossed up” rent). Furthermore, the authors adopt a training/test split in the observed leasing data to evaluate the accuracy of using these pricing models for prediction. In the study, 80% of the samples are randomly selected to train the AVM and 20% was held back to test accuracy out of sample. A naive prediction model is used to establish accuracy prediction benchmarks for the AVM using the out-of-sample test data. To evaluate the performance of the AVM, the authors use a Monte Carlo simulation to run the selection process 100 times and calculate the test dataset's mean error (ME), mean absolute error (MAE), mean absolute percentage error (MAPE), median absolute percentage error (MdAPE), coefficient of dispersion (COD) and the training model's r-squared statistic (R2) for each run.

Findings

Using a sample of office lease transactions in Sydney CBD (Central Business District), Australia, the authors demonstrate accuracy statistics that are comparable to those used in residential valuation and outperform a naive model.

Originality/value

AVMs in an office leasing context have significant implications for practice. First, an AVM can act as an impartial arbiter in market rent review disputes. Second, the technology may enable frequent market rent reviews as a lease negotiation strategy that allows tenants and property owners to share market risk by limiting concerns over high costs and adversarial litigation that can emerge in a market rent review dispute.

Details

Property Management, vol. 40 no. 2
Type: Research Article
ISSN: 0263-7472

Keywords

Article
Publication date: 27 November 2017

Michael Rehm, Shuzhen Chen and Olga Filippova

Numerical superstition is well-known in Asian countries and can influence decision-making in many markets, from financial investment to purchasing a house. This study aims…

Abstract

Purpose

Numerical superstition is well-known in Asian countries and can influence decision-making in many markets, from financial investment to purchasing a house. This study aims to determine the house price effects of superstition and understand if these have changed over time.

Design/methodology/approach

Using sales transactions of freestanding houses in Auckland, New Zealand, the authors use hedonic price analysis to investigate whether superstitious beliefs associated with lucky and unlucky house numbers affect property values.

Findings

The analysis reveals ethnic Chinese buyers in Auckland displayed superstitious home buying behaviour in the period 2003-2006 by attributing value to homes with street addresses starting or ending with the lucky number eight. However, this willing to pay higher prices for lucky numbers was not reflected in the analysis of 2011-2015 sales transactions. The disappearance of superstition price effects may indicate that ethnic Chinese in the Auckland housing market have, over time, assimilated New Zealand’s Western culture and have become less superstitious.

Originality/value

Unlike previous studies, the authors parse buyers into two populations of homebuyers, ethnic Chinese and non-Chinese purchasers, and model the two groups’ housing transactions independently to more accurately establish if numerical superstition influences house prices.

Details

International Journal of Housing Markets and Analysis, vol. 11 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 6 February 2017

Olga Filippova, Michael Rehm and Chris Dibble

With the marked increase in the awareness of earthquake risks following the Canterbury earthquakes, the purpose of this paper is to assess if the reassessment of risk has…

Abstract

Purpose

With the marked increase in the awareness of earthquake risks following the Canterbury earthquakes, the purpose of this paper is to assess if the reassessment of risk has influenced rents for office accommodation in commercial buildings. Two contrasting office markets are examined: New Zealand’s largest market within a high-risk earthquake zone – Wellington, and the country’s largest market within a low-risk zone – Auckland.

Design/methodology/approach

A sample of 252 leasing transactions were collected from a proprietary database of Colliers International, one of the largest commercial brokerage firms in New Zealand. Hedonic pricing models were developed to isolate the effects of building seismic strength on office rents.

Findings

Wellington office market rents tend to increase with higher earthquake strength (New Building Standard) ratings, all other factors held equal. In contrast, rents in Auckland, a low-risk earthquake area, do not exhibit such price effects.

Practical implications

The study provides estimates of the economic value associated with seismic retrofits which are vital for building owners’ decision making who must weigh retrofit costs against the economic benefits of doing so.

Originality/value

This study provides the first empirical analysis of office rents in New Zealand and the first quantitative analysis, internationally, of the impact of earthquake risk on commercial rents.

Details

Journal of Property Investment & Finance, vol. 35 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 29 April 2020

Michael Rehm and Yang Yang

The purpose of this paper is to examine housing speculation in Auckland, New Zealand, the second most unaffordable market in the world.

Abstract

Purpose

The purpose of this paper is to examine housing speculation in Auckland, New Zealand, the second most unaffordable market in the world.

Design/methodology/approach

The study considers rental property purchases from 2002 to 2016 within the Auckland region. The authors apply a simple cash flow model that emulates the before-tax investment calculations used during purchasers’ due diligence. From this model, the authors determine whether purchases involved speculation on capital gains or not and the authors estimate the degree of speculation at the transaction level.

Findings

The authors find that housing speculation in Auckland is endemic and its housing market is a politically condoned, finance-fuelled casino with investors broadly betting on tax-free capital gains.

Social implications

Although political leaders have decried that the “speculation-driven housing bubble in Auckland is a social and economic disaster”, the government’s main anti-speculation tool – the Income Tax Act’s intention test – sits idle and inoperable. By holstering this key policy tool, politicians foster housing speculation and use residential property investment to buttress New Zealand’s asset-based welfare system.

Originality/value

The authors develop novel methods to objectively distinguish speculators from genuine investors, measure the speculative pressure applied by individual rental property purchasers and outline an evidence-based approach to operationalise New Zealand’s currently impotent anti-speculation tool, the intention test.

Details

International Journal of Housing Markets and Analysis, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 7 February 2020

Yang Yang, Mingquan Zhou and Michael Rehm

The purpose of this paper is twofold. First, the study aims to test whether expectations are adaptive in the Auckland housing market. The second purpose is to examine the…

Abstract

Purpose

The purpose of this paper is twofold. First, the study aims to test whether expectations are adaptive in the Auckland housing market. The second purpose is to examine the interplay between expectations and Auckland housing prices.

Design/methodology/approach

In this study, two vector error correction models (VECM) are built: one VECM includes survey-based expectations and another one encompasses model-based expectations with the assumption that property investors’ expectations are adaptive. The paper goes on by comparing and examining the results of Granger causality tests and impulse response analyses.

Findings

The findings reveal that Auckland property buyers’ expectations are adaptive. In addition, this study provides some evidence of a feedback cycle between Auckland housing prices and expectations.

Research limitations/implications

This study posits that Auckland property buyers’ expectations in the next 12 months are based on three-year price movements with more emphasis being placed on recent price history. This assumption may not be an accurate reflection of true expectations.

Practical implications

This paper helps policymakers to deepen their understanding of Auckland property buyers by showing that their expectations form through the extrapolation of the past price trend.

Originality/value

The study possibly marks the first attempt to test and compare the relationship between housing prices and two forms of expectations: survey-based and model-based. Additionally, this study is probably the first one that empirically examines whether there is a feedback cycle between expectations and property prices in the Auckland housing market.

Details

International Journal of Housing Markets and Analysis, vol. 13 no. 4
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 25 February 2014

Olga Filippova and Michael Rehm

Global demand growth for new cell phone towers is extraordinary. However, many markets feature onerous regulation that impedes the rolling out of new infrastructure…

Abstract

Purpose

Global demand growth for new cell phone towers is extraordinary. However, many markets feature onerous regulation that impedes the rolling out of new infrastructure. Regulators are primarily concerned with tower aesthetics and the perceived impact on house prices. Focusing on isolating the impact of tower aesthetic, this paper aims to discover whether proximity to cell phone towers influences house prices.

Design/methodology/approach

Hedonic modeling is used to measure the influence of proximity to cell phone towers on house prices in the urban area of Christchurch, New Zealand, based on 9,715 transactions over the period from 2004 to 2010. Three functional proximity forms are tested separately.

Findings

No statistically significant connection between cell phone towers and house prices was observed.

Originality/value

In light of this study's results and emerging empirical evidence on the proximity-price relationship, New Zealand's recently introduced National Environmental Standards for Telecommunication Facilities may serve as a model of public policy on tower siting for other markets.

Details

International Journal of Housing Markets and Analysis, vol. 7 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 6 March 2009

Michael Rehm

The purpose of this paper is to quantify leaky building stigma associated with monolithic claddings, explore how this stigma has likely been amplified by media coverage…

Abstract

Purpose

The purpose of this paper is to quantify leaky building stigma associated with monolithic claddings, explore how this stigma has likely been amplified by media coverage, estimate the number of affected properties and quantify the collective house price impact on homeowners of monolithic‐clad dwellings in the Auckland region.

Design/methodology/approach

Residential sales transaction data organised in two subgroups (single‐family houses and multi‐unit dwellings) from 1997 through 2006 are analysed using a series of annual hedonic pricing models to empirically test for the presence of stigma. This is coupled with a descriptive analysis of leaky building media coverage to understand how this coverage may be influencing the stigma.

Findings

The empirical results show that a leaky building stigma exists and is discounting prices of the Auckland Region's monolithic‐clad single family houses by 5 per cent and multi‐unit dwellings by 10 per cent. Approximately 37,500 monolithic‐clad dwellings have been built in the region since 1992 and their homeowners have suffered an estimated $1 billion reduction in property values due to leaky building stigma.

Research limitations/implications

Although leaky building stigma primarily relates to monolithic claddings, this stigma reflects elevated weathertightness risks associated with several Mediterranean‐style architectural features.

Practical implications

The study's findings can be directly applied to residential valuation practice and can assist the New Zealand government more accurately assess the full economic cost of the nation's leaky building problem.

Originality/value

This research provides an initial empirical study on stigma associated with leaky building syndrome. The findings offer direction to further research on other domestic and international housing markets that are experiencing similar stigma phenomenon.

Details

International Journal of Housing Markets and Analysis, vol. 2 no. 1
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 21 November 2008

Michael Rehm and Olga Filippova

The purpose of this paper is to explore and quantify the impact of geographically defined school zones on house prices in New Zealand.

1086

Abstract

Purpose

The purpose of this paper is to explore and quantify the impact of geographically defined school zones on house prices in New Zealand.

Design/methodology/approach

This paper develops a series of hedonic pricing models to analyse 10,000 house sales transactions over a 21‐year period within a compact group of inner Auckland suburbs, which represents the epicentre of the school zoning debate in New Zealand. The study diverts from past research, which mainly focuses on school quality measures such as standardised test scores, and instead analyses the comprehensive price impacts of access to popular state schools. Its unique approach employs a geographic information system to divide the study area into effective school zones and then further subdivide into suburbs, thus offering a vital indicator of internal validity.

Findings

The study's findings indicate that the influence of school zoning on house prices is not uniform and the variation in price effects is largely a function of the uncertainty of future zone boundary definitions. Although some “in‐zone” suburbs have enjoyed accelerated house price growth following the reintroduction of zoning in 2000, peripheral suburbs’ price premiums have diminished.

Originality/value

In contrast to standard hedonic studies on school quality, this paper offers an innovative approach that integrates geography to solve what is essentially a spatial economic problem.

Details

International Journal of Housing Markets and Analysis, vol. 1 no. 4
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 9 August 2011

Olga Filippova and Michael Rehm

This paper aims to determine if proximity to cell phone towers influences house prices with a focus on isolating the impact of tower aesthetics on nearby property values.

Abstract

Purpose

This paper aims to determine if proximity to cell phone towers influences house prices with a focus on isolating the impact of tower aesthetics on nearby property values.

Design/methodology/approach

Sales transaction data from the Auckland Region during 2005‐2007 were analysed using a series of hedonic models testing various proximity specifications across two populations of cell towers: residential‐only and global (all towers).

Findings

The study could not establish a relationship between cell towers and house prices with the exception of armed monopole towers located in residential areas due to such towers' acute visual disamenity.

Practical implications

The study's findings can be directly applied to residential valuation practice and can assist government regulators and telecommunication companies in siting new cell towers.

Originality/value

This research provides three distinct methodological improvements: unconventional geocoding that improves spatial accuracy, separate analysis of towers in residential areas that enhances internal validity and inclusion of tower mast data to isolate the impact of tower aesthetics.

Details

International Journal of Housing Markets and Analysis, vol. 4 no. 3
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 1 July 2014

Jeremy Gabe and Michael Rehm

– Using a unique data set, the purpose of this paper is to test the hypothesis that tenants pay increased accommodation costs for space in energy efficient office property.

2292

Abstract

Purpose

Using a unique data set, the purpose of this paper is to test the hypothesis that tenants pay increased accommodation costs for space in energy efficient office property.

Design/methodology/approach

The authors obtain lease contracts for office space in central Sydney, Australia. Empirical data on annual gross face rent and contract terms from each lease are combined with building characteristics and measured energy performance at the time of lease. Hedonic regression isolates the effect of energy performance on gross face rent.

Findings

No significant price differentials emerged as a function of energy performance, leading to a conclusion that tenants are not willing to pay for energy efficiency. Six factors – tenancy floor level, submarket location, proximity to transit, market fixed effects, building quality specification and, surprisingly, outgoings liability – consistently explain over 85 per cent of gross face rent prices in Sydney.

Research limitations/implications

Rent premiums from an asset owner's perspective could emerge as a result of occupancy premiums, market timing or agent bias combined with statistically insignificant rental price differentials.

Practical implications

Tenants are likely indifferent to energy costs because the paper demonstrates that energy efficiency lacks financial salience and legal obligation in Sydney. This means that split incentives between owner and tenant are not a substantial barrier to energy efficiency investment in this market.

Originality/value

This study is the first to thoroughly examine energy efficiency rent price premiums at the tenancy scale in response to disclosure of measured performance. It also presents evidence against the common assumption that rent premiums at the asset scale reflect tenant willingness to pay for energy efficiency.

Details

Journal of Property Investment & Finance, vol. 32 no. 4
Type: Research Article
ISSN: 1463-578X

Keywords

1 – 10 of 46