House price prediction using hedonic pricing model and machine learning techniques

Abstract

Summary The problem with property valuation is that it is extremely complex. It is difficult to objectively model the pricing process or fairly estimate a property value. Many factors can contribute to this complexity such as spatial and time factors. Evaluators and researchers have been trying to model the process for centuries. Up until recently, when computer‐aided valuation systems provided better solutions in the data evaluation and real estate valuation. Nevertheless, they may suffer from low transparency, inaccuracy, and inefficiency. This work explores the ability of machine learning techniques (MLTs) in enhancing economic activities by increasing the accuracy of house price prediction. In this article, XGBoost algorithm has been integrated with outlier sum‐statistic (OS) approach. In the real estate industry, the price of property plays a crucial role in economic growth. The research attempts to predict the price of a house using MLTs. Here, the price of the property is predicted using Extreme Gradient (XG) boosting algorithm and hedonic regression pricing. Both XGBoost and hedonic pricing models use 13 variables as inputs to predict house prices. The contribution of this research lies in the practicality of using XGboost technique to predict house prices. Finally, the accuracy of the prediction algorithms is reported with XGBoosting showing the highest accuracy of 84.1% while the accuracy of the hedonic regression algorithm is 42%.