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Article
Publication date: 6 May 2021

Chung Yim Edward Yiu and Ka Shing Cheung

The repeat sales house price index (HPI) has been widely used to measure house price movements on the assumption that the quality of properties does not change over time…

Abstract

Purpose

The repeat sales house price index (HPI) has been widely used to measure house price movements on the assumption that the quality of properties does not change over time. This study aims to develop a novel improvement-value adjusted repeat sales (IVARS) HPI to remedy the bias owing to the constant-quality assumption.

Design/methodology/approach

This study compares the performance of the IVARS model with the traditional hedonic price model and the repeat sales model by using half a million repeated sales pairs of housing transactions in the Auckland Region of New Zealand, and by a simulation approach.

Findings

The results demonstrate that using the information on improvement values from mass appraisal can significantly mitigate the time-varying attribute bias. Simulation analysis further reveals that if the improvement work done is not considered, the repeat sales HPI may be overestimated by 2.7% per annum. The more quality enhancement a property has, the more likely it is that the property will be resold.

Practical implications

This novel index may have the potential to enable the inclusion of home condition reporting in property value assessments prior to listing open market sales.

Originality/value

The novel IVARS index can help gauge house price movements with housing quality changes.

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: 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: 1 February 2004

Sau Kim Lum

This paper examines commonly used property price indices in several Commonwealth countries. It finds that many of the measures may be flawed owing to two issues relating…

Abstract

This paper examines commonly used property price indices in several Commonwealth countries. It finds that many of the measures may be flawed owing to two issues relating to the index construction methodology: the quality change problem and the choice of an index number algorithm. Using data that comprises the universe of transactions for the Singapore residential market, alternative indices based on more rigourous estimation models are constructed that aim to mitigate these problems. When compared to the official benchmark indices, deviations in time series price behaviour are evident particularly for short‐run dynamics. A key implication of the results is the importance of explicitly recognizing the biases that can arise from using extant indices. Otherwise, a reliance on flawed index signals for decision‐making may result in distorted allocations.

Details

Journal of Property Investment & Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 29 March 2013

Anthony Owusu‐Ansah

The purpose of this paper is to examine if temporal aggregation matters in the construction of house price indices and to test the accuracy of alternative index…

Abstract

Purpose

The purpose of this paper is to examine if temporal aggregation matters in the construction of house price indices and to test the accuracy of alternative index construction methods.

Design/methodology/approach

Five index construction models based on the hedonic, repeatsales and hybrid methods are examined. The accuracy of the alternative index construction methods are examined using the mean squared error and out‐of‐sample technique. Monthly, quarterly, semi‐yearly and yearly indices are constructed for each of the methods and six null hypotheses are tested to examine the temporal aggregation effect.

Findings

Overall, the hedonic is the best method to use. While running separate regressions to estimate the index is best at the broader level of time aggregation like the annual, pooling data together and including time dummies to estimate the index is the best at the lower level of time aggregation. The repeatsales method is the least preferred method. The results also show that it is important to limit time to the lowest level of temporal aggregation when construction property price indices.

Practical implications

This paper provides alternative method, the mean squared error method based on an out‐of‐sample technique to evaluate the accuracy of alternative index construction methods.

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. However, the index method and level of temporal aggregation to use still remain unresolved in the index construction literature. This paper contributes to fill these gaps.

Details

Property Management, vol. 31 no. 2
Type: Research Article
ISSN: 0263-7472

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Article
Publication date: 5 June 2017

Anthony Owusu-Ansah, William Mark Adolwine and Eric Yeboah

The purpose of this paper is to test whether temporal aggregation matters when constructing hedonic house price indices for developing markets using Ghana as a case study.

Abstract

Purpose

The purpose of this paper is to test whether temporal aggregation matters when constructing hedonic house price indices for developing markets using Ghana as a case study.

Design/methodology/approach

Monthly, quarterly, semi-yearly and yearly hedonic price indices are constructed and six null hypotheses are tested using the F-ratios to examine the temporal aggregation effect.

Findings

The results show that temporal aggregation may not be a serious issue when constructing hedonic house price indices for developing markets as a result of the smaller sample size which these markets normally have. At even 10 per cent significance level, none of the F-ratios estimated is statistically significant. Analysis of the mean returns and volatilities reveal that indices constructed at the lower level of temporal aggregation are very volatile, suggesting that the volume of transactions can affect the level of temporal aggregation, and so, the temporal aggregation level should not be generalised, as is currently observed in the literature.

Originality/value

The diversification importance of real estate and the introduction of real estate derivatives and home equity insurance as financial products call for the construction of robust and accurate real estate indices in all markets. While almost all empirical research recommends real estate price indices to be conducted at the lower level of temporal aggregation, these studies are largely conducted in developed markets where transactions take place frequently and large transaction databases exist. Unfortunately, little is known about the importance of temporal aggregation effect when constructing indices for developing real estate markets. This paper contributes to fill these gaps.

Details

International Journal of Housing Markets and Analysis, vol. 10 no. 3
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 7 March 2016

Yumi Saita, Chihiro Shimizu and Tsutomu Watanabe

Aging in Japan is advancing faster than in other major developed nations, and this is expected to have substantial effects on the country’s economic systems, including its…

Abstract

Purpose

Aging in Japan is advancing faster than in other major developed nations, and this is expected to have substantial effects on the country’s economic systems, including its social security system. What kind of effect will the falling birth rate, aging society and declining population have on the real estate market? Will the often mentioned real estate price asset meltdown really occur? The purpose of this paper is to address these questions by investigating how much demographic factors affected real estate prices in Japan and the USA.

Design/methodology/approach

The authors use regional panel data for Japan and the USA real estate prices and estimate the effects of demographic factors, such as dependency ratio, i.e. the ratio of population aged 65+ to population aged 20-64. For Japan, as no region-by-region quality-adjusted housing price indexes covering the entire country exist, data are constructed by conducting quality adjustment using hedonic regression.

Findings

Both in Japan and the USA, real estate prices in a region are inversely correlated with the old age dependency ratio in that region, and positively correlated with the total number of population in that region. The demographic factor had a greater impact on real estate prices in Japan than in the USA. For Japan, it was also found that demographic impact on land prices will be −2.4 per cent per year in 2012-2040, while it was −3.7 per cent per year in 1976-2010, suggesting that aging will continue to have downward pressure on land prices over the next 30 years, although the demographic impact will be slightly smaller than it was in 1976-2010, as the old age dependency ratio will not increase as much as it did before.

Originality/value

Japan’s regional panel data are newly constructed based on a hedonic approach. Analyzing the effect of dependency ratio for Japan and the USA panel data is a new challenge. Forecasting future impact of demographic factor on Japan’s land prices based on the population forecast is a new challenge.

Details

International Journal of Housing Markets and Analysis, vol. 9 no. 1
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 17 July 2017

Chihiro Shimizu

The purpose of this paper is to decompose and measure the microstructure of property investment returns for Tokyo’s residential property markets in as much detail as…

Abstract

Purpose

The purpose of this paper is to decompose and measure the microstructure of property investment returns for Tokyo’s residential property markets in as much detail as possible in comparison with office market.

Design/methodology/approach

Using enterprise value data for property investment trust companies composed of share prices available on capital markets, this study proposed a method of estimating property investment returns corresponding to changes in capital markets, and clarified the distortion in capitalization rate that are formed based on property appraisal prices.

Findings

The results for residential property showed that as building floor space increased, income and price increased while the discount rate decreased. In particular, a higher return could be obtained from office property than residential property by investing in larger-scale properties. Building age lowered asset price and income for both residential and office property, especially for residential property.

Research limitations/implications

In Japan, investors believe that investment returns are high for properties close to the city centre, relatively new properties and those with large design or floor space. Therefore, this study first measured how asset prices, income and asset price–income ratios that comprise property investment returns change based on differences in these property characteristics. Second, the reliability/distortion of information that can be observed on the property investment market was measured. Furthermore, there was a significant divergence between discount rates and risk premiums formed by asset or space markets versus capital markets.

Practical implications

The differences of discount rate and risk premium formed by asset markets versus capital markets indicate that appraisal prices have biases. Thus, when it comes to property investment decisions, it is essential to make active use not just of property investment returns based on appraisal prices formed by asset markets but also information formed by capital markets.

Social implications

A greater difference was generated in a shrinking market, suggesting that analysing property returns estimated on asset market information alone could lead to erroneous investment decisions.

Originality/value

This research is the first to use the enterprise value data from real estate investment trust companies composed of share prices available on capital markets for calculating discount rate and risk premium in property market.

Details

International Journal of Housing Markets and Analysis, vol. 10 no. 4
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: 2 April 2021

Brian Micallef, Reuben Ellul and Nathaniel Debono

The private rental market in Malta has expanded significantly in recent years, but as at 2020, no official rent index is yet published. This paper aims to construct such…

Abstract

Purpose

The private rental market in Malta has expanded significantly in recent years, but as at 2020, no official rent index is yet published. This paper aims to construct such an index and explores the relative importance of structural, locational and neighbourhood factors to advertised rents.

Design/methodology/approach

The authors compile hedonic indices for advertised rents in Malta collected from publicly available sources using webscraping techniques. The database comprises more than 25,000 listings with information on various property attributes. Hedonic regressions are estimated using ordinary least squares and rent indices are computed using three alternative methods: the time dummy method, the rolling time dummy method and the average characteristics method. For the latter, indices are computed using the Laspeyres, Paasche and Fisher methods.

Findings

The results from the hedonic indices indicate that the annual growth rate in advertised rents was slowing down during 2019, albeit still remaining relatively high, while in 2020, advertised rents contracted sharply, amplified by the effects of COVID-19. The findings also reveal that advertised rental prices are significantly influenced by various structural, locational and neighbourhood factors.

Originality/value

This paper introduces the first rent index in Malta that will be used to monitor developments in the rental segment of the housing market and for financial stability purposes given the share of buy-to-let properties. It also provides various elasticities on the impact of property attributes on advertised rents in Malta. Finally, the study contributes to the literature on the effect of foreign-born residents on advertised rents.

Details

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

Keywords

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Article
Publication date: 5 October 2010

Chihiro Shimizu, Hideoki Takatsuji, Hiroya Ono and Kiyohiko G. Nishimura

An economic indicator faces two requirements. It should be reported in a timely manner and should not be significantly altered afterward to avoid erroneous messages. At…

Abstract

Purpose

An economic indicator faces two requirements. It should be reported in a timely manner and should not be significantly altered afterward to avoid erroneous messages. At the same time, it should reflect changing market conditions constantly and appropriately. These requirements are particularly challenging for housing price indices, since housing markets are subject to large temporal/seasonal changes and occasional structural changes. The purpose of this paper is to estimate a hedonic price index of condominiums of Tokyo, taking account of seasonal sample selection biases and structural changes in a way it enables us to report the index in a manner which is timely and not subject to change after reporting.

Design/methodology/approach

The paper proposes an overlapping‐period hedonic model (OPHM), in which a hedonic price index is calculated every month based on data in the “window” of a year ending this month (this month and previous 11 months). It also estimates standard hedonic housing price indexes under alternative assumptions: no structural change (“structurally restricted”: restricted hedonic model) and different structure for every month (“structurally unrestricted”: unrestricted hedonic model).

Findings

Results suggest that the structure of the housing market, including seasonality, changes over time, and these changes occur continuously over time. It is also demonstrated that structurally restricted indices that do not account for structural changes involve a large time lag compared with indices that do account for structural changes during periods with significant price fluctuations.

Social implications

Following the financial crisis triggered by the US housing market, housing price index guidelines are currently being developed, with the United Nations, International Monetary Fund, and Organization for Economic Co‐operation and Development leading the way. These guidelines recommend that indices be estimated based on the hedonic method. We believe that the hedonic method proposed here will serve as a reference for countries that develop hedonic method‐based housing price indices in future.

Originality/value

In the many studies involving conventional housing price indices, whether those using the repeatsales method or hedonic method, there are few that have analyzed the problem of market structural changes. This paper is the first to construct a large database and systematically estimate the effect that changes in market structure have on housing price indices.

Details

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

Keywords

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