Measuring the Value of Housing Quality

TLDR

The study estimates the implicit prices of specific components of residential service bundles consumed by urban households. The authors regress unit prices on aggregated quality measures derived from factor analysis of 39 indicators of dwelling, structural, parcel, and micro‑neighborhood characteristics. The analysis shows that bundle quality impacts price as strongly as rooms, bathrooms, and lot size, confirms neighborhood schools influence value, and suggests ghetto rentals may command higher prices than non‑ghetto rentals.

Abstract

Abstract Based on an extensive sample of individual dwelling units, this article estimates the market value, or the implicit prices, of specific aspects of the bundles of residential services consumed by urban households. Quantitative estimates were obtained by regressing market price of owner- and renter-occupied dwelling units on measures of the qualitative and quantitative dimensions of the housing bundle. The measures of residential quality associated with individual dwelling units were obtained by using factor analysis to aggregate some 39 indexes of the quality of narrowly defined aspects of the dwelling units, structures, parcels, and micro-neighborhoods. The analysis indicates that the quality of the bundle of residential services has about as much effect on the price of housing as such objective aspects as the number of rooms, number of bathrooms, and lot size. The analysis also confirms the influence of neighborhood schools on the value of residential properties and indicates that rental properties in the ghetto may be systematically more expensive than those located outside of the ghetto.