Distance in geographic and characteristics space for real estate pricing
International Journal of Housing Markets and Analysis
ISSN: 1753-8270
Article publication date: 17 August 2021
Issue publication date: 1 December 2022
Abstract
Purpose
A common approach to predicting the price of residential properties uses the hedonic price model and its spatial extensions. Within the hedonic approach, real estate prices are decomposed into internal characteristics of an apartment, apartment characteristics and external characteristics. To account for the unobserved quality of the surrounding environment, price models include spatial price correlation factors, where the distance is usually measured as the distance in geographic space. In determining the price, a seller focuses not only on the observed and unobserved factors of the apartment and its environment but also on the prices of similar marketed objects that can be selected both by geographic proximity and by characteristics similarity. The purpose of this study is to show the latter point empirically.
Design/methodology/approach
This study uses an ensemble clustering approach to measure objects' proximity and test whether the proximity of objects in the property characteristics space along with spatial correlation explain the significant variation in prices.
Findings
In this paper, the pricing behaviour of sellers in a reselling market in Perm, Russia is studied. This study shows that the price transmission mechanism includes both geographic and characteristics spaces.
Practical implications
After testing on market data, the proposed framework for the distance construct could be used to obtain higher predictive power for price predictive models and construction of automated valuation services.
Originality/value
This study tests the higher explanatory power of the model that includes both the distance measured in geographic and property characteristics spaces.
Keywords
Acknowledgements
Funding: The article was prepared within the framework of the HSE University Basic Research Program and funded by the Russian Academic Excellence Project “5–100”.
Citation
Ozhegov, E.M. and Ozhegova, A. (2022), "Distance in geographic and characteristics space for real estate pricing", International Journal of Housing Markets and Analysis, Vol. 15 No. 5, pp. 938-952. https://doi.org/10.1108/IJHMA-04-2021-0041
Publisher
:Emerald Publishing Limited
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