Hedonic price indexes: A case study of the Dutch existing residential property market

This study aims to investigate the possibility of a price index for the Dutch existing residential property market based on the hedonic method. Currently the official price index for the Dutch existing residential property is estimated using the “sales price appraisal ratio” method by Bourassa, Hoesli & Sun (2006). Partly due to a lack of reliable data on dwelling characteristics at the time (de Vries, de Haan, van der Wal, & Marién, 2009), a problem often encountered when making hedonic price indexes for residential property (Hill R. J., 2013). However, newly available data on dwelling and locational characteristics in the form of the “Basisregistratie adressen en gebouwen (BAG)” could make a hedonic price index feasible. To test this feasibility two regression models have been made. The first model only includes dwelling characteristics, whereas the second also includes locational characteristics in the form of factors estimated with a factor analysis. This factor analysis yields some interesting results resembling the “multi nuclei” theory of Harris & Ullman (1945). Ultimately, this study concludes that both models can be used to construct a decently reliable hedonic price index for the Dutch existing residential property market. However, the price index with the locational characteristics will most likely encounter problems with data availability if used to estimate up-to-date price changes.