Hedonic Housing Price Theory Review
The most commonly applied methods of housing price evaluation can be broadly divided into two groups: traditional and advanced methods. There are five traditional mainstream standard recognized valuation methods in the field of property valuation: compara
- PDF / 286,449 Bytes
- 30 Pages / 439.37 x 666.142 pts Page_size
- 0 Downloads / 199 Views
Hedonic Housing Price Theory Review
2.1
Introduction
The most commonly applied methods of housing price evaluation can be broadly divided into two groups: traditional and advanced methods. There are five traditional mainstream standard recognized valuation methods in the field of property valuation: comparative method (comparison), contractor’s method (cost method), residual method (development method), profits method (accounts method), and investment method (capitalization/income method). Advanced methods include techniques such as hedonic price modeling, artificial neural networks (ANN), case-based reasoning, and spatial analysis methods. Hedonic price modeling is the most commonly applied of these. Many scholars (e.g., Griliches 1961) have referred to the work of Court (1939) as an early pioneer in applying this technique. He used the term hedonic to analyze price and demand for the individual sources of pleasure, which could be considered as attributes combined to form heterogeneous commodities. It was an important early application of multivariate statistical techniques to economics. In this chapter, several aspects of hedonic modeling will be investigated in-depth, including the theoretical basis, theoretical criticism, estimation criticism, and its use in pricing housing attributes, including accessibility (the subject of this book). Accordingly, the conclusion will mainly focus on the theoretical aspects of hedonic price modeling that are relevant to the question of which function form to choose in this study.
© Tongji University Press and Springer Nature Singapore Pte Ltd. 2017 Y. Xiao, Urban Morphology and Housing Market, Springer Geography, DOI 10.1007/978-981-10-2762-8_2
11
12
2.2
2 Hedonic Housing Price Theory Review
Hedonic Model
In regards to the theoretical foundations, the hedonic model is based on Lancaster’s (1966) theory of consumer’s demand. He recognized composite goods whose units are homogeneous, such that the utilities are not based on the goods themselves but instead the individual “characteristics” of goods—its composite attributes. Thus, the consumers make their purchasing decision based on the number of good characteristics as well as per unit cost of each characteristic. For example, when people choose a car, they would consider the quantity of characteristics of the car, such as fast acceleration, enhanced safety, attractive styling, and increased prestige, and so on. Although Lancaster was the first to discuss hedonic utility, he says nothing about pricing models. Rosen (1974) was the first to present a theory of hedonic pricing. Rosen argued that an item can be valued by its characteristics; in that case, an item’s total price can be considered as a sum of price of each homogeneous attributes, and each attribute has a unique implicit price in an equilibrium market. This implies that an item’s price can be regressed on the characteristics to determine the way in which each characteristic uniquely contributes to the overall composite unit price. As Rothenberg et al. (1991) descri
Data Loading...
