The use of proxy variables in housing price analysis

This paper presents a reexamination of data used by Berry to study housing prices in Chicago. The detailed data on 275 single-family houses are used to test the proposition that the tax assessment on improvements is a good proxy for the attributes of the houses. It is shown that the test used by Berry is irrelevant for the question of omitted variables bias, and the correct test is presented. It is concluded that the proxy corrects for a bias in the coefficient of percent black population, but increases the negative bias in the coefficient of percent Latino population.