HEDONIC METHOD IN HOUSE PRICING ANALYSIS: A CRITICAL REVIEW
Since the seminal paper by Rosen (1974), hedonic pricing method has been extensively employed to estimate housing prices. A housing unit is considered to be a heterogeneous commodity and each unit being different from others because of the different attributes. When a house is purchased or rented, the various attributes that go with it are also purchased or rented. Here, these attributes are broadly classified into structural, locational and neighbourhood characteristics. The market price (rent) of a housing unit can be influenced not only through the cost of construction, but also by the buyers’ evaluations of the housing unit’s bundle of innate attributes. Price of residential properties varies across space and time depending upon the characteristics of the houses as well as on the preferences of the potential buyers and their capabilities. This paper tries to trace the theoretical and empirical development of hedonic house pricing method. The various popular methods applied in house pricing is also highlighted and conclude by establishing why hedonic pricing method is the most widely used method of house pricing.
KEYWORDS: Hedonic House Pricing, Structural Attributes, Locational Attributes,