lecture8 - Lecture #9 Intro to Economics of Housing 1 Why...

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1 Lecture #9 Intro to Economics of Housing
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2 Heterogeneous: dwellings differ in size, age, style, features, location Durable: Deterioration rate depends on maintenance and repair decisions Large Switching Costs: Adjustment when gap between ideal and actual large Why is Housing Different from Other Goods?
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3 Why do we care about heterogeneity, durability, and moving costs? Is it efficient for low-income households to live in used housing? Who benefits from subsidies for new housing? How do growth controls affect the housing market? Questions to Address
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4 Each dwelling has a different bundle of characteristics Dwelling features: quality, age, size Neighborhood effects: quality of other dwellings For each component of the housing bundle, there's a price Hedonic Pricing Approach
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Hedonic regression • y i = x i ’b + e i – y i is price – x i is a vector of housing characteristic (age, rooms, bedrooms, etc.) – e i is the sum of all unmodeled factors b is vector of ‘prices’ for building characteristics. OLS estimation requires E[x i e i ]=0. Unmeasured characteristics must be uncorrelated with measured ones. 5
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6
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7 Positive influence: proximity to jobs, schools, transit stations, churches Negative effects: crime, toxic waste, noisy highways Results of Other Hedonic Studies
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8 Difficulty with Hedonic Estimates Omitted variables Can’t measure all characteristics of houses.
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This note was uploaded on 03/08/2012 for the course ECON 155 taught by Professor Klein during the Spring '12 term at Berkeley.

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lecture8 - Lecture #9 Intro to Economics of Housing 1 Why...

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