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Hedonic Amenity Valuation and Housing Renovations
STEPHEN B. BILLINGS

Department of Economics; University of North Carolina Charlotte; Charlotte NC 28223

Published: 29 March 2015 by Wiley Blackwell (Blackwell Publishing) in Real Estate Economics
Wiley Blackwell (Blackwell Publishing), Volume 43; 10.1111/1540-6229.12093
Abstract: Hedonic and repeat sales estimators are commonly used to value such important urban amenities as schools, environmental quality and access to transit. Given that property data often omits information on quality differences between same‐aged homes as well as changes in structural attributes over time, researchers must assume that property renovations are uncorrelated with neighborhood amenities. We formally test if this assumption is valid by incorporating detailed data on renovations in Charlotte, North Carolina. We begin by testing how the inclusion of minor and major home improvements influences hedonic and repeat sales indices. Results find limited bias in hedonic indices and that renovated properties are no more likely to be sold than nonrenovated properties. Using the introduction of Charlotte's light rail‐transit system in 2000, we estimate a positive bias of between 1.6% and 19.9% on the capitalized benefits of access to light rail due to omitted information on renovations. Our results show that a number of common data cleaning techniques used to address missing information on structural improvements may worsen this bias.
Keywords: North Carolina, Repeat Sales, amenities, Hedonic and Repeat, Property Renovations, Omits Information, bias

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