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Location, location, location: Extracting location value from house prices

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  • Kolbe, Jens
  • Schulz, Rainer
  • Wersing, Martin
  • Werwatz, Axel

Abstract

The price for a single-family house depends both on the characteristics of the building and on its location. We propose a novel semiparametric method to extract location values from house prices. After splitting house prices into building and land components, location values are estimated with adaptive weight smoothing. The adaptive estimator requires neither strong smoothness assumptions nor local symmetry. We apply the method to house transactions from Berlin, Germany. The estimated surface of location values is highly correlated with expert-based land values and location ratings. The semiparametric method can therefore be used for applications where no other location value information exists or where this information is not reliable.

Suggested Citation

  • Kolbe, Jens & Schulz, Rainer & Wersing, Martin & Werwatz, Axel, 2012. "Location, location, location: Extracting location value from house prices," SFB 649 Discussion Papers 2012-040, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2012-040
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    1. Esteban Rossi-Hansberg & Pierre-Daniel Sarte & Raymond Owens, 2010. "Housing Externalities," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 485-535, June.
    2. Schulz, Rainer & Werwatz, Axel, 2011. "Is there an equilibrating relationship between house prices and replacement cost? Empirical evidence from Berlin," Journal of Urban Economics, Elsevier, vol. 69(3), pages 288-302, May.
    3. Yatchew, A., 1997. "An elementary estimator of the partial linear model," Economics Letters, Elsevier, vol. 57(2), pages 135-143, December.
    4. Bourassa, Steven C. & Hoesli, Martin & Scognamiglio, Donato & Zhang, Sumei, 2011. "Land leverage and house prices," Regional Science and Urban Economics, Elsevier, vol. 41(2), pages 134-144, March.
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    6. Stuart S. Rosenthal, 1999. "Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 288-302, May.
    7. Anglin, Paul M & Gencay, Ramazan, 1996. "Semiparametric Estimation of a Hedonic Price Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 633-648, Nov.-Dec..
    8. John M. Clapp, 2004. "A Semiparametric Method for Estimating Local House Price Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(1), pages 127-160, March.
    9. J. Polzehl & V. G. Spokoiny, 2000. "Adaptive weights smoothing with applications to image restoration," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 62(2), pages 335-354.
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    Citations

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    Cited by:

    1. Kolbe, Jens & Schulz, Rainer & Wersing, Martin & Werwatz, Axel, 2019. "Land value appraisal using statistical methods," FORLand Working Papers 07 (2019), Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation".
    2. repec:hum:wpaper:sfb649dp2015-002 is not listed on IDEAS
    3. Braun, Stefanie & Lee, Gabriel S., 2021. "The prices of residential land in German counties," Regional Science and Urban Economics, Elsevier, vol. 89(C).
    4. Jens Kolbe & Rainer Schulz & Martin Wersing & Axel Werwatz, 2019. "Bodenwertermittlung mit statistischen Methoden [Land value appraisal using statistical methods]," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 5(1), pages 131-154, November.
    5. Henry Wüstemann & Gero Coppel & Marco Masin, 2015. "Landnutzung und ländlicher Tourismus: Eine hedonische Analyse," Journal of Socio-Economics in Agriculture (Until 2015: Yearbook of Socioeconomics in Agriculture), Swiss Society for Agricultural Economics and Rural Sociology, vol. 8(1), pages 48-59.
    6. Fuess, Roland & Koller, Jan A. & Weigand, Alois, 2017. "Best Land Use with Negative Externalities: Determining Land Values from Residential Rents," Working Papers on Finance 1705, University of St. Gallen, School of Finance, revised May 2019.
    7. Hinrichs, Nils & Kolbe, Jens & Werwatz, Axel, 2020. "AVM and high dimensional data: Do ridge, the lasso or the elastic net provide an "automated" solution?," FORLand Working Papers 22 (2020), Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation".
    8. repec:cha:ysa001:v:7:y:2014:i:1:p:48-59 is not listed on IDEAS
    9. Kolbe, Jens & Wüstemann, Henry, 2014. "Estimating the value of Urban Green Space: A hedonic pricing analysis of the housing market in Cologne, Germany," SFB 649 Discussion Papers 2015-002, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    10. Roland Füss & Jan A. Koller & Alois Weigand, 2021. "Determining Land Values from Residential Rents," Land, MDPI, vol. 10(4), pages 1-29, March.

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    More about this item

    Keywords

    location value; adaptive weight smoothing; spatial modeling;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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