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Property Renovations and Their Impact on House Price Index Construction

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  • Alexander N. Bogin
  • William M. Doerner

Abstract

This paper provides the first wide-scale report of property renovation bias in repeat-sales house price indices across a multitude of U.S. geographies. In local markets, omitting information on property improvements can bias index estimates in a predictable manner and can distort valuations by as much as 15% in the central districts of large cities. This systematic variation in bias is partially a function of the disparate concentration of renovation activity with property improvements occurring more frequently in denser areas. The distortionary effect tends to decline outside of downtown areas and becomes negligible in smaller cities.

Suggested Citation

  • Alexander N. Bogin & William M. Doerner, 2019. "Property Renovations and Their Impact on House Price Index Construction," Journal of Real Estate Research, Taylor & Francis Journals, vol. 41(2), pages 249-284, April.
    • Handle: RePEc:taf:rjerxx:v:41:y:2019:i:2:p:249-284
    DOI: 10.1080/10835547.2019.12091526
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    References listed on IDEAS

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    1. Steven C. Bourassa & Eva Cantoni & Martin Hoesli, 2013. "Robust Repeat Sales Indexes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 41(3), pages 517-541, September.
    2. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    3. Alexander Bogin & William Doerner & William Larson, 2019. "Local House Price Dynamics: New Indices and Stylized Facts," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 47(2), pages 365-398, June.
    4. Leah Brooks & Byron Lutz, 2016. "From Today's City to Tomorrow's City: An Empirical Investigation of Urban Land Assembly," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 69-105, August.
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    Cited by:

    1. Mari O. Mamre & Dag Einar Sommervoll, 2024. "Coming of Age: Renovation Premiums in Housing Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 69(2), pages 307-342, August.
    2. Adam D. Nowak & Patrick S. Smith, 2020. "Quality-Adjusted House Price Indexes," American Economic Review: Insights, American Economic Association, vol. 2(3), pages 339-356, September.

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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
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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