The Price in Real Estate Market: Measurement of Fluctuation by Hedonic Approach

Dr Yoshirou Yamamura

Saturday, 31 May 2003; 7:30-9:30pm

Keynes Hall, King's College

The fundamental structure in real estate market of Japan has rapidly changed for last several years. Settlement of liabilities in bank or companies in Japan has been crucial socio-economic issue since the burst of the bubble, the early 90s. On the other hand, the promotion of securitization for real estate may make the view of investment and possession of real estate changed. The movement of securitization means that the nature of real estate market shifts to one of other assets market such as stock and bond. This shift may affect the behavior of companies in Japan through securitization for the land and buildings which they own.
Under such social and economic condition, it has become more important that 'How we can make a decision on the property prices?' or 'How can we recognize the fluctuation in property prices?' That's because we need information about the future value of the property when we invest in property market, and we, thus, need to seize the history of price changes precisely. However, considering transaction of individual parcel in some area, that does not happen so frequently as stock or bond and the trade information such as price does not open to the public in general. Even if we have gain information about transaction in some property, we might not be able to use that information to analyze another property condition because characters or attributes of those properties may be different even if they are neighboring parcel. Therefore, in order to measure the fluctuation in market price precisely, we must collect the transaction data and construct the price index based on such data. Hedonic approach is one of the methods to do so. Hedonic approach is the method that explains the price of goods or services using their attributes such as quality or character. In the case of housing, it is applied to statistically estimate the model which determines the housing price with physical condition of housing, location condition, and access to mass transportation etc. Based on the model estimated, we can develop the constant-quality index.
The presentation provides a overview of hedonic approach for constructing the price index and examination into measuring price changes in real estate market during the bubble period, the late of 80s.