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Determinants of House Price: A Decision Tree Approach

Author

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  • Gang-Zhi Fan

    (Research Institute of Economics & Management, Southwestern University of Finance and Economics, 55 Guanghua Cun Street, Chengdu, Sichuan 610074, China, gzfan@swufe.edu.cn, rstfg@nus.edu.sg, Department of Real Estate, School of Design and Environment, National University of Singapore, 4 Architecture Drive, Singapore 117566)

  • Seow Eng Ong

    (Department of Real Estate, School of Design and Environment, National University of Singapore, 4 Architecture Drive, Singapore 117566, rstongse@nus.edu.sg)

  • Hian Chye Koh

    (School of Business, SIM University, Clementi Road, Singapore 599491, hckoh@unisim.edu.sg)

Abstract

The hedonic-based regression approach has been utilised extensively to investigate th relationship between house prices and housing characteristics. However, this approach is subject t criticisms arising from potential problems relating to fundamental model assumptions an estimation such as the identification of supply and demand, market disequilibrium, the selectio of independent variables, the choice of functional form of hedonic equation and marke segmentation. This study introduces and utilises an alternative approach-the decision tre approach, which is an important statistical pattern recognition tool. Using the Singapore resal public housing market as a case study, the article demonstrates the usefulness of this techniqu in examining the relationship between house prices and housing characteristics, identifying th significant determinants of housing prices and predicting housing prices. The built tree show that homebuyers are more concerned about the basic housing characteristics of two- and three room flats or four-room flats such as floor area, model type and flat age. However, homebuyer of five-room flats pay more attention to floor level in addition to the basic housin characteristics. In addition, homebuyers of executive apartments are less concerned about basi quantitative characteristics and have higher housing consumption expectations and pay mor attention to 'quality' and service characteristics such as recreational facilities and the livin environment.

Suggested Citation

  • Gang-Zhi Fan & Seow Eng Ong & Hian Chye Koh, 2006. "Determinants of House Price: A Decision Tree Approach," Urban Studies, Urban Studies Journal Limited, vol. 43(12), pages 2301-2315, November.
    • Handle: RePEc:sae:urbstu:v:43:y:2006:i:12:p:2301-2315
    DOI: 10.1080/00420980600990928
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