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Utility Theory and Rent Optimization: Utilizing Cluster Analysis to Segment Rental Markets

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Abstract

The research reported here segments apartment residents and units into homogeneous groups. This segmentation is accomplished via cluster analysis. The purpose of the research is to identify market segments with higher marginal utility preferences for selected project or unit amenities; with the ultimate goal of rental rate optimization. The uniqueness of the research is twofold in that the "tenant response" based hedonic analysis is modeled via cluster analysis instead of the typical regressive framework. The usefulness of the research is based in the presentation of a methodology that should at least be considered as an adjunct technique to the typical regression analysis.

Suggested Citation

  • Charles A. Smith & Mark J. Kroll, 1989. "Utility Theory and Rent Optimization: Utilizing Cluster Analysis to Segment Rental Markets," Journal of Real Estate Research, American Real Estate Society, vol. 4(1), pages 61-71.
    • Handle: RePEc:jre:issued:v:4:n:1:1989:p:61-71
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    References listed on IDEAS

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    1. Austin J. Jaffe & C. F. Sirmans, 1984. "The Theory and Evidence on Real Estate Financial Decisions: A Review of the Issues," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 378-400, September.
    2. Abelson, Peter W., 1979. "Property prices and the value of amenities," Journal of Environmental Economics and Management, Elsevier, vol. 6(1), pages 11-28, March.
    3. Karl L. Guntermann & Stefan Norrbin, 1987. "Explaining the Variability of Apartment Rents," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(4), pages 321-340, December.
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    Cited by:

    1. William Hardin & Marvin Wolverton, 1996. "The Relationship between Foreclosure Status and Apartment Price," Journal of Real Estate Research, Taylor & Francis Journals, vol. 12(1), pages 101-109, January.
    2. Konowalczuk Jan, 2017. "The Problem of Reflecting the Market in the Legal Principles of Real Estate Valuation in Poland. How to Eliminate the “Legal Footprint”?," Real Estate Management and Valuation, Sciendo, vol. 25(2), pages 44-57, June.
    3. Karen M. Gibler & Tanja Tyvimaa, 2014. "The Potential for Consumer Segmentation in the Finnish Housing Market," Journal of Consumer Affairs, Wiley Blackwell, vol. 48(2), pages 351-379, June.
    4. Zahra Saderion & Barton Smith & Charles A. Smith, 1994. "An Integrated Approach to the Evaluation of Commercial Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 9(2), pages 151-168.
    5. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 1997. "The Spatial Dimensions of the Investment Performance of UK Commercial Property," Urban Studies, Urban Studies Journal Limited, vol. 34(9), pages 1475-1494, August.
    6. G. Donald Jud & John D. Benjamin & G. Stacy Sirmans, 1996. "What Do We Know about Apartments and Their Markets?," Journal of Real Estate Research, American Real Estate Society, vol. 11(3), pages 243-258.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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