Local Price Index for Undeveloped Land in Germany

Prices of undeveloped land are the basis for property tax in most German federal states. The taxation is based on standard land values, which are primarily based on realized purchase prices of undeveloped land. On a nationwide level price index exists. The observation and presentation of price trends over time (economic cycle) for undeveloped land in local markets presents a challenge. The main reasons for this are the low number of transactions, the influence on pricing caused by the seller (e.g. subsidy by the local authority or focused sale in a new development area), the strong dependence of prices on the quality of the location, which overlaps with the economic situation. Various options for mapping price trends are discussed. In particular, the use of weighting functions via similarities (spatial and functional similarities) are discussed. The derivation of the index series is examined using decision tree-based methods such as Random Forest and compared to a mean and median average with smoothing function. The results show that the price trend can be well understood. Nevertheless, all methods show a very high uncertainty per index number, which does not represent a significant development despite a large price trend.