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Hedonic Models of Real Estate Prices: GAM and Environmental Factors

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  • Jason R. Bailey
  • Davide Lauria
  • W. Brent Lindquist
  • Stefan Mittnik
  • Svetlozar T. Rachev

Abstract

We consider the use of P-spline generalized additive hedonic models for real estate prices in large U.S. cities, contrasting their predictive efficiency against linear and polynomial based generalized linear models. Using intrinsic and extrinsic factors available from Redfin, we show that GAM models are capable of describing 84% to 92% of the variance in the expected ln(sales price), based upon 2021 data. As climate change is becoming increasingly important, we utilized the GAM model to examine the significance of environmental factors in two urban centers on the northwest coast. The results indicate city dependent differences in the significance of environmental factors. We find that inclusion of the environmental factors increases the adjusted R-squared of the GAM model by less than one percent.

Suggested Citation

  • Jason R. Bailey & Davide Lauria & W. Brent Lindquist & Stefan Mittnik & Svetlozar T. Rachev, 2022. "Hedonic Models of Real Estate Prices: GAM and Environmental Factors," Papers 2210.14266, arXiv.org.
    • Handle: RePEc:arx:papers:2210.14266
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    File URL: http://arxiv.org/pdf/2210.14266
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    References listed on IDEAS

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    1. Jeffrey P. Cohen & Cletus C. Coughlin, 2008. "Spatial Hedonic Models Of Airport Noise, Proximity, And Housing Prices," Journal of Regional Science, Wiley Blackwell, vol. 48(5), pages 859-878, December.
    2. R. Kelley Pace, 1998. "Appraisal Using Generalized Additive Models," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 77-100.
    3. Robert J. Hill & Michael Scholz, 2018. "Can Geospatial Data Improve House Price Indexes? A Hedonic Imputation Approach with Splines," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 64(4), pages 737-756, December.
    4. Mick Silver, 2016. "How to Better Measure Hedonic Residential Property Price Indexes," IMF Working Papers 2016/213, International Monetary Fund.
    5. Ansgar Belke & Jonas Keil, 2018. "Fundamental Determinants of Real Estate Prices: A Panel Study of German Regions," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(1), pages 25-45, February.
    6. Kelley Pace, 1998. "Appraisal Using Generalized Additive Models," Journal of Real Estate Research, Taylor & Francis Journals, vol. 15(1), pages 77-99, January.
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    Cited by:

    1. Jason R. Bailey & W. Brent Lindquist & Svetlozar T. Rachev, 2024. "Hedonic Models Incorporating ESG Factors for Time Series of Average Annual Home Prices," Papers 2404.07132, arXiv.org.
    2. Jason R. Bailey & W. Brent Lindquist & Svetlozar T. Rachev, 2024. "Hedonic Models Incorporating Environmental, Social, and Governance Factors for Time Series of Average Annual Home Prices," JRFM, MDPI, vol. 17(8), pages 1-17, August.

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