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Using Locational Equilibrium Models to Evaluate Housing Price Indexes

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  • Holger Sieg
  • V. Kerry Smith
  • Spencer Banzhaf
  • Randy Walsh

Abstract

This paper analyses how the properties of locational equilibrium models can be used to evaluate approaches for constructing price indexes for heterogeneous houses. Housing markets play a key role in locational equilibrium models. Prices for houses determine that implicit costs that households bear when locating in a given community. We evaluate a variety of price indexes all relying on hedonic models for predicting interjurisdictional housing prices. The application uses a unique panel data set of housing transactions in Southern California. The rank predictions of different models are robust with respect to the hedonic model and the composite commodity definition used in aggregation. They do not depend significantly on the spatial or temporal definitions used to define the choice set of local housing markets. Finally, housing price estimates are strongly correlated with education and environmental amenities.

Suggested Citation

  • Holger Sieg & V. Kerry Smith & Spencer Banzhaf & Randy Walsh, 2000. "Using Locational Equilibrium Models to Evaluate Housing Price Indexes," NBER Working Papers 7934, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7934
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    References listed on IDEAS

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    1. Dennis Epple & Thomas Romer & Holger Sieg, 1999. "The Tiebout Hypothesis and Majority Rule: An Empirical Analysis," NBER Working Papers 6977, National Bureau of Economic Research, Inc.
    2. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August.
    3. O'Sullivan,Arthur & Sexton,Terri A. & Sheffrin,Steven M., 2007. "Property Taxes and Tax Revolts," Cambridge Books, Cambridge University Press, number 9780521035996.
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    7. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    8. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-242, May.
    9. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1993. "Existence of voting and housing equilibrium in a system of communities with property taxes," Regional Science and Urban Economics, Elsevier, vol. 23(5), pages 585-610, November.
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    Cited by:

    1. Banzhaf, H. Spencer, 2002. "Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles," Discussion Papers 10833, Resources for the Future.

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    More about this item

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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