The Duration of Marketing Time of Residential Housing

The marketing of unique durable goods such as housing presents a good example for the application of search theory. An optimal stopping rule strategy is employed to model sellers' behavior. The primary hypothesis is that the greater the atypicality of a house, the greater the expected variance of offers. Because a maximizing seller will wish to entertain more offers the greater is the variance, the marketing time of atypical houses will be relatively longer than that of standard houses. Using a sample of resale houses, the empirical study uses a failure time model to confirm the hypothesis. Extensions are mentioned, including discussions of the role of the list price and the limitations of the standard hedonic regression approach when applied to housing.     

The Impact on Housing Values of Restrictions on Rights of Ownership: The Case of an Occupant's Age

With the exception of anecdotal information, little is known about the specific effects on the value of a house because its ownership is restricted to people older than a certain age. This article provides an empirically-derived assessment of the impact on the selling price of single-family residences when their ownership is age restricted. To determine the effect on the sales price of age-restricted houses, a standard hedonic pricing model is applied to a sample of 371 sales transactions drawn from a suburban area of a large city. The results indicate that an age restriction placed on houses decreases their value by 6%. This finding may be of interest to local land-use regulators, developers who are considering developing age-restricted houses and appraisers who wish to make value adjustments to these homes.     

Real Estate Valuation Under Rent Control: The Case of Santa Monica

This is a study on the impact of rent control in the city of Santa Monica on rents and apartment house values. Findings include that rent control has significantly lowered rents for tenants, lowered the real values of apartment buildings and that the gross rent multipliers of buildings sold subsequent to the passage of rent control failed to decline. This last finding is a result of, according to the author, optimism on the part of buyers that the controls will be modified or eliminated in the future.     

Do House Price Levels Anticipate Subsequent Price Changes within Metropolitan Areas?

This research examines the relationship between hedonically controlled housing price levels and subsequent changes in those prices across locations within MSAs. Are areas with a high price relative to an “imputed rent” paying for higher appreciation? In an efficient market (e.g., Gordon Growth Model), as fundamentals (impute rent) differ across locations and change over time, anticipation of these should generate a positive correlation between (residual) price levels and subsequent price changes. We undertake these tests in four different MSAs using a panel of repeat‐sale house price indices that have been scaled to price levels with the hedonic attributes of the house and ZIP code. In three markets we find that identical houses in higher priced ZIP codes subsequently appreciate faster. In one market we find that there is little statistical difference.     

Do Tenants Capture the Benefits from the Low‐Income Housing Tax Credit Program?

This article compares the rent savings accrued by recipient households over the life cycle of Low‐Income Housing Tax Credit (LIHTC) projects to their allocated tax credits. A simple two‐stage empirical procedure is developed and implemented for a selected medium‐sized metropolitan statistical area. Using hedonic pricing parameters estimated in the first stage, LIHTC ceiling rents are compared to predicted market rents. The findings indicate rent savings constitute a relatively small fraction of the programs costs, suggesting developers and investors may capture some of the program's benefits. As this finding characterizes only one potential source of benefits of the LIHTC program, a brief discussion of other potential benefits to low‐income households supplements the analysis.     

The Effect of Clustering on Office Rents: Evidence from the Amsterdam Market

This article examines the rent effects of office clustering in the Amsterdam office market for the period 2000–2005. We isolate the rent effects of location density based on geographic information system (GIS) methodology, while controlling for variations in object characteristics in a cross-sectional hedonic model. While controlling for the age, location and quality of the object, we find a strong positive effect of being located in dense office areas. We find that the vicinity of other office objects is priced into rent levels, regardless of market conditions. This article extends existing literature by examining the influence of clustering outside the United States, during changing economic tides and by application of novel methodology, based on objective clustering schemes, which can be replicated for other geographic areas.     

Variation Across Price Segments and Locations: A Comprehensive Quantile Regression Analysis of the Sydney Housing Market

Standard house price indices measure average movements of average houses in average locations belonging to an average price segment and hence obscure spatial and cross‐sectional variation of price appreciation rates even within a single metropolitan area. This article combines penalized quantile regression techniques with the hedonic imputation approach to reveal such kind of variation. The method is applied to house transactions from Sydney between 2001 and 2014. The analysis finds significant variation across sub‐markets over time and in particular during the boom‐and‐bust cycle peaking in 2004. Appreciation rates were highest for suburban, low‐priced and lowest for inner‐city, high‐priced houses.     

Interpretable machine learning for real estate market analysis

Machine Learning (ML) excels at most predictive tasks but its complex nonparametric structure renders it less useful for inference and out-of sample predictions. This article aims to elucidate and enhance the analytical capabilities of ML in real estate through Interpretable ML (IML). Specifically, we compare a hedonic ML approach to a set of model-agnostic interpretation methods. Our results suggest that IML methods permit a peek into the black box of algorithmic decision making by showing the web of associative relationships between variables in greater resolution. In our empirical applications, we confirm that size and age are the most important rent drivers. Further analysis reveals that certain bundles of hedonic characteristics, such as large apartments in historic buildings with balconies located in affluent neighborhoods, attract higher rents than adding up the contributions of each hedonic characteristic. Building age is shown to exhibit a U-shaped pattern in that both the youngest and oldest buildings attract the highest rents. Besides revealing valuable distance decay functions for spatial variables, IML methods are also able to visualise how the strength and interactions of hedonic characteristics change over time, which investors could use to determine the types of assets that perform best at any given stage of the real estate investment cycle.     

Influence of Rent Differentials on the Choice between Office Rent Contracts with and without Relocation Provisions

In this paper we concern ourselves empirically with the influence of rent differentials on the choice between rent contracts with and without relocation provisions investigating the effects of relocation provisions on office rents. The study departs from the extant literature by using a switching simultaneous-equations model to estimate hedonic rent functions for alternative office lease contracts with choices of relocation provisions. The empirical results suggest that price considerations and certain lease terms are important determinants of the choice of office relocation rights. The results also suggest that certain tenant characteristics, like tenant size and creditworthiness, have only a marginal effect on the choice of relocation rights.     

Office Rent in the Chicago CBD

This study focuses on the Chicago CBD office market, an important market at the local, regional, national and international levels. The purpose of this study is to develop a hedonic regression model that explains the variation in office rent per square foot. Five functional forms (linear, reciprocal, logarithmic, semi-log and log-linear) of the model are considered. A generally log-linear model is determined to be the best model based on a series of Box-Cox/Box-Tidwell type transformations and likelihood ratio tests. The regression results reveal that the model has very high explanatory power. The methodology of this study differs substantially from that of previous studies on this topic. Perhaps most importantly, the unit of analysis is the office unit rather than the building. This choice suggested the use of specific lease terms for actual transactions and location of the unit within the building as new variables. Finally, the modeling of location of the building within the CBD was found to be a critical step.     

Price Behavior and Capital Gains on Residential Real Estate: The Case of Sweden*

During most of the postwar period the increase of the prices of single-family homes in Sweden have exceeded the general inflation, while for several years the opposite is true of apartment houses. We discuss the reasons and present estimates of capital gains attached to this price behavior. It turns out that apartment houses have often yielded nominal but no real capital gains. Single-family homes have yielded real accrued capital gains amounting to approximately 3% of GNP during the period 1963–1976. We also present a rough indirect method of estimating realized capital gains, first disregarding, and then including the effects of loans.     

Estimating the Gains from New Rail Transit Investment: A Machine Learning Tree Approach

Urban rail transit investments are expensive and irreversible. As people differ with respect to their demand for trips, their value of time, and the types of real estate they live in, such projects are likely to offer heterogeneous benefits to residents of a city. Defining the opening of a major new subway in Seoul as a treatment for apartments close to the new rail stations, we contrast hedonic estimates based on multivariate hedonic methods with a machine learning (ML) approach. This ML approach yields new estimates of these heterogeneous effects. While a majority of the “treated” apartment types appreciate in value, other types decline in value. We cross‐validate our estimates by studying what types of new housing units developers build in the treated areas close to the new train lines.     

An Analysis of Office Market Rents: Some Empirical Evidence

This paper provides an empirical analysis of office building rents using data for a five-year period in a medium- sized city. The results indicate that rent levels respond to various factors in the expected manner: rents vary systematically across classes of buildings and locations, overall market conditions have a significant impact on rents, and contract variations are associated with rent differences. We also present the first evidence at the building level on the rent-vacancy adjustment process. The results show a significant relationship between rent changes and vacancies.     

Green Noise or Green Value? Measuring the Effects of Environmental Certification on Office Values

This study investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and noncertified buildings. These are additional occupier benefits, lower holding costs for investors and a lower risk premium. Drawing upon the CoStar database of U.S. commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. The results suggest that, compared to buildings in the same submarkets, eco‐certified buildings have both a rental and sale price premium.     

An Empirical Examination of Traditional Neighborhood Development

This study analyzes the impact of the new urbanism on single-family home prices. Specifically, we explore the price differential that homebuyers pay for houses in new urbanist developments relative to houses in conventional suburban developments. Using data on over 5,000 single-family home sales from 1994 to 1997 in three different neighborhoods, hedonic regression results reveal that consumers pay more for homes in new urbanist communities than those in conventional suburban developments. Further analyses indicate that the price premium is not attributable to differences in improvement age and other housing characteristics.     

Determinants of Differential Rent Changes: Mean Reversion versus the Usual Suspects

This is a hedonic regression study of the 2001–2004 and 2004–2007 rent growth of 18,000 rental units. Which variables matter: Location? Age? Rent level? Occupancy duration? Structure type? The answers deepen understanding of the rental market and help guide statistical agency practice. We document significant rent stickiness. Initial relative rent level is the best predictor, mainly because of mean reversion. (This problem likely extends well beyond the present study.) “Location” comes in second, though often not statistically significant: the relative value of location is persistent. Age and occupancy duration are also notable. Our findings support statistical agency practices.     

Do Tax‐Deferred Exchanges Impact Purchase Price? Evidence from the Phoenix Apartment Market

Many authors have commented on the compliance risk associated with tax-deferred exchanges. However, no published studies explicitly address whether the risks associated with the exchange process impact the price at which exchanged assets trade. Using a unique data set that documents transactions for nondirect exchanges, this study examines the price impact of tax-deferred exchanges on apartment transactions in the Phoenix, Arizona, market. Consistent with the price pressure hypothesis originally developed by Scholes (1972) and Kraus and Stoll (1972) and the tax capitalization hypothesis proposed by Oates (1969), the data show that exchange participants pay an economically significant premium to acquire replacement assets. A conventional hedonic price index is generated to investigate the rational bounds of the exchange premium.     

Hierarchical Zoning, Incompatible Uses and Price Discounts

This study examines an aspect of hierarchical zoning. Hierarchical zoning, unlike mutually exclusive zoning, is uni-directional in that it protects upper-level residential uses from nonconforming, non-residential uses but not vice versa. The result is that the lower-level zones can be a mixture of several nonconforming, incompatible uses. This unique attribute of hierarchical zoning offers a window of opportunity for choices for affordable housing at affordable locations. Using hedonic analysis, empirical evidence shows that huge price discounts (over 15%) are associated with apartments that are situated in nonconforming zones. Arguments here support more flexible zoning.     

The hidden cost of smoking: Rent premia in the housing market

In this article, we provide novel evidence on the additional costs associated with smoking. While it may not be surprising that smokers pay a rent premium, we are the first to quantify the size of this premium. Our approach is innovative in that we use text mining methods that extract implicit information on landlords’ attitudes to smoking directly from Zoopla UK rental listings. Applying hedonic, matching, and machine-learning methods to the text-mined data, we find a positive smoking rent premium of around 6%. This translates into £14.40 of indirect costs, in addition to £40 of weekly spending on cigarettes estimated for an average smoker in the United Kingdom.     

The Reaction of Landlords to Rent Control

Studies on rent control have generally failed to elicit attitudes and reactions of landlords to rent control ordinances. This analysis attempts to fill the gap by querying 1357 landlords in San Diego County, an area currently without rent control. As expected, almost all the landlords were opposed to rent control. The landlords were asked if actual rent control enactment would impact their investment plans and, if so, how. They also were asked if the current threat of rent control is having an impact on their investment plans and, if so, how. The vast majority of landlords responded to both of these questions in the affirmative. The various answers on type of reaction center around two themes: getting out of the apartments business and a cessation of any further investment in apartments. A discriminant analysis showed numerous variables to be related to whether landlords are reactive to rent control enactment or the threat of rent control.