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Housing Market Segmentation: A Finite Mixture Approach

Bourassa, S. C., Dröes, M. I., & Hoesli, M. (2024). Housing Market Segmentation: A Finite Mixture Approach. De Economist (Netherlands), 172(4), 291–337. https://doi.org/10.1007/s10645-024-09446-2

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Abstract

This paper investigates the usefulness of adding a discrete choice model to the hedonic model via a finite mixture approach. Our approach leads to different hedonic models for different housing market segments based on household information. As such, the proposed method goes beyond measuring the average price of housing attributes. As a case study, we estimate the finite mixture model for the Miami and Louisville metropolitan areas using information on race, ethnicity, and income from the American Housing Survey. We find that the model outperforms the standard hedonic model or a model with linear interaction terms between demographics and housing characteristics. Moreover, market segmentation is based on a complex combination of race, ethnicity, and income. For Louisville, Black households need 2.5 times higher income than White households to advance to a higher market segment and even at high incomes tend to occupy their own segment. For Miami, low-income, non-Hispanic households live in their own segment even if occupying the same dwelling size as households in other segments.

Keywords

Housing market segmentation; Hedonic model; Finite mixture model; R31; O18; D51

WCRER releases report and white paper – March 2024

The Washington Center for Real Estate Research (WCRER) has released a white paper entitled “Increasing Washington State’s Residential Development Capacity”, co-authored by WCRER Director Steven Bourassa (also the H. Jon and Judith M. Runstad Endowed Professor and Chair of the Runstad Department of Real Estate) and WCRER Associate Director Mason Virant. WCRER also recently released a report which focuses on the impacts of HB 1923 and HB 2343, legislation enacted in 2019 and 2020 which provide grants to help develop…

UW researchers issue state-level policy recommendations for transit-oriented development

CBE Researchers developed a report “Finding Common Ground: Best Practices for Policies Supporting Transit-Oriented Development,” with the Mobility Innovation Center and led by the Washington Center for Real Estate Research.  Project Team: Mason Virant, Associate Director, Washington Center for Real Estate Research Christian Phillips, Urban Design and Planning PhD Program Steven C. Bourassa, PhD Director, Washington Center for Real Estate Research Arthur Acolin, Associate Professor, Runstad Department of Real Estate Visit the project page here.

Steven Bourassa quoted in Washington State Standard article on Rent Prices Stabilizing

Steven Bourassa is an H. Jon and Judith M. Runstad Endowed Professor and Chair in the Runstad Department of Real Estate, and is Director of the Washington Center for Real Estate Research. Professor Bourassa was quoted in a Washington State Standard story entitled “Rents in Washington show signs of stabilizing,” as an expert in the field. Read the article here. 

Steven Bourassa

Steven C. Bourassa is H. Jon and Judith M. Runstad Endowed Professor and Chair of the Runstad Department of Real Estate in the College of Built Environments at the University of Washington. Previously, he served as department chair at Florida Atlantic University, the University of Auckland, and the University of Louisville, where he was KHC Real Estate Research Professor. His research focuses on urban housing and land markets and policy, covering a range of topics including housing tenure, residential property valuation, property taxation, housing affordability, low-income housing policy, community land trusts, and public land leasehold. He has published his research in numerous real estate and related journals, such as the Journal of Housing Economics, Journal of Real Estate Finance and Economics, Journal of Real Estate Research, and Journal of Urban Economics, as well as Real Estate Economics, Regional Science and Urban Economics, and Urban Studies. His co-edited book, Leasing Public Land: Policy Debates and International Experiences, was published by the Lincoln Institute of Land Policy. Dr. Bourassa is on the editorial boards of eight real estate journals. He is a Fellow of the Weimer School of Advanced Studies in Real Estate and Land Economics and received the Research Achievement Award from the International Real Estate Society, of which he is a past President. He is currently Treasurer of the American Real Estate and Urban Economics Association. He holds a Ph.D. in city and regional planning from the University of Pennsylvania.

Hedonic, Residual, and Matching Methods for Residential Land Valuation

Bourassa, Steven C.; Hoesli, Martin. (2022). Hedonic, Residual, and Matching Methods for Residential Land Valuation. Journal Of Housing Economics, 58.

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Abstract

• Our first method involves a hedonic model estimated for sales of vacant lots. • Another method depreciates improvements, obtaining land value as a residual. • Our third approach matches the sales of vacant and subsequently developed lots. • This allows us to estimate a hedonic model of land leverage (the ratio of land to total property value) for improved properties. • We conclude that the third approach is the most promising of the three methods. Accurate estimates of land values on a property-by-property basis are an important requirement for the effective implementation of land-based property taxes. We compare hedonic, residual, and matching techniques for mass appraisal of residential land values, using data from Maricopa County, Arizona. The first method involves a hedonic valuation model estimated for transactions of vacant lots. The second approach subtracts the depreciated cost of improvements from the value of improved properties to obtain land value as a residual. The third approach matches the sales of vacant lots with subsequent sales of the same properties once they have been developed. For each pair, we use a land price index to inflate the land price to the time of the improved property transaction and then calculate land leverage (the ratio of land to total property value). A hedonic model is estimated and used to predict land leverage for all improved properties. We conclude that the matching approach is the most promising of the methods considered. [ABSTRACT FROM AUTHOR]; Copyright of Journal of Housing Economics is the property of Academic Press Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Keywords

Hedonic Method; Land Leverage; Land Valuation; Matching Approach; Residual Approach

Washington Center for Real Estate Research

Established in 1989 through two legislative programs, the WCRER compiles real estate sale transaction data, rental market statistics, and development metrics throughout the State of Washington. From this, the WCRER also develops affordable housing metrics for the state with data published in quarterly Washington State Housing Market Reports, a twice yearly Washington State Apartment Market Report, and the Washington Housing Market Data Toolkit. The WCRER also provides bespoke data driven research, educational outreach programs, and policy guidance to professional organizations consistent with its public service mandate.

The Washington Center for Real Estate Research (WCRER) was initially established by the Board of Regents at Washington State University (WSU) to provide a bridge between academic study and research on real estate topics and the professional real estate industries. It served that mission at WSU until merging with the Runstad Center at the beginning of 2012. WCRER works with faculty to ensure their rigorous research is accessible and easily usable by industry participants, the media and the general public, regardless of their statistical sophistication. 

WCRER aims to provide credible research, value-added information, education services and project-oriented research to real estate licensees, real estate consumers, real estate service providers, institutional customers, public agencies, and communities in Washington state and the Pacific Northwest region.

The Washington Center for Real Estate Research is a key provider of real estate research and data across the State of Washington. The Center is primarily funded by the State, hence its central role in the provision of quality and robust data and market reports. Among its core activities are the Quarterly Washington State Housing Market Report and the semi-annual Apartment Market Survey for the State Department of Licensing. 

The Center is active across a range of other research projects and works closely with stakeholders both across the University of Washington with the public and private sectors.