Reflections on hedonic price modeling

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Abstract

Purpose
This paper provides a critical history of residential hedonic price modeling, highlighting key issues and advances. It is based on the keynote address presented by the first author at the European Real Estate Society Annual Conference in Sopot (Gdańsk), Poland, in June 2024.

Design/methodology/approach
The core of the paper is a high-level review of the methodological literature, focusing on three issues: model specification, multicollinearity and functional form. This review is framed by an early example of hedonic price modeling and a current application. These examples demonstrate key issues and advances in hedonic price modeling.

Findings
Hedonic price research has expanded dramatically with the advent of personal computing. Increased availability of data has enabled better model specification. At the same time, the development of interpretable machine learning techniques has allowed much more flexible modeling of functional form. However, multicollinearity continues to be, by definition, an intractable problem.

Originality/value
This paper presents a review of residential hedonic price modeling intended to provide researchers with a useful high-level perspective on the topic. A case study of Gdańsk illustrates an approach to producing interpretable results from machine learning estimations.

Keywords

Hedonic modeling; house prices; specification issues; multicollinearity; functional form; interpretable machine learning; R31