[Hedonic regression-House price in Bradford and how they are affected by variables]

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Acknowledgement

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DECLARATION

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Table of Contents

ACKNOWLEDGEMENTII

DECLARATIONIII

RESULTS AND ANALYSIS1

Hedonic Model - Theoretical Issues1

Hedonic Model - Empirical Applications4

Model specification5

Interpretation of the Results8

CONCLUSION17

Future Aspects17

REFERENCES19

List of Tables

TABLE-1: DESCRIPTIONS OF VARIABLES IN HEDONIC PRICING MODEL12

TABLE-2: DESCRIPTIVES OF HOUSE PRICES13

TABLE-3 LINEAR REGRESSION MODEL17

TABLE-4: F-STATISTICS OF THE HEDONIC REGRESSION MODELS18

TABLE-5: MIXED MODEL EFFECT20

Results and Analysis

The hedonic analysis approach has long been used as a standard tool to model the price of complex commodities, such as housing. This chapter uses the hedonic pricing model examining the relationship between residential housing prices and housing attributes in each cluster to explore the effect the different variables have on the prices of the houses in Bradford.

Since the pioneer work of Lancaster (1966) and Rosen (1974), a large number of studies have been generated to explore the hedonic pricing model. Previous studies of the hedonic analysis state that property values are subject to its utility-generating characteristics, so that households' preferences to house features, such as dwelling quality, neighborhood quality and job opportunities substantially influence their purchase decisions. These preferences are translated into the marginal effects of housing attributes on housing prices. Early literature focus on the theoretical foundations as well as empirical applications of the hedonic model, while the recent studies concentrate on alternative techniques to mitigate the limitations of the hedonic model for better estimation. This chapter applies the hedonic pricing model to evaluate the effect of housing attributes on residential housing prices using the micro-data of the 2 mile radius of houses in Bradford (BD8) from whitegates website.

Hedonic Model - Theoretical Issues

Lancaster (1966) first introduces the idea that consumers acquire utility not only from goods themselves, but also from the features of goods. The utility-generating characteristics of goods can be used for the demand-side study of the market. This concept becomes the foundation of the hedonic pricing model.

Rosen (1974) focuses on both the demand and supply sides of the market. The theory postulates that the utility of differentiated products is attributable to the characteristics of the products, and the price of specific characteristic is determined by both consumers and producers of the goods.

Later studies pay great attention on various characteristics of residential housing as a good, and related theoretical modifications of the hedonic model are conducted. The special features of owner-occupied housing typically include: heterogeneity, nonlinearity and specification, the disequilibrium nature of housing markets as well as identification difficulties.

The residential housing is a typical example of heterogeneous products. The price of particular dwelling is determined not only by the effective prices of its attributes, but ...