Abstract
Given the importance of house prices it is not surprising that house price indices are used for many purposes. One of the characteristics that differentiates indices is the level of control for housing quality. It is shown that, regardless of the desired level of quality control, it is necessary to account for all significant determinants of house prices that change over time in order to obtain unbiased estimates of house price indices. An example is presented using data from the American Housing Survey that is merged with census tract level information obtained from the Summary Tape Files of the 1980 and 1990 Decenial Censuses. The results show that not accounting for neighborhood quality can lead to substantial biases in estimates of house price appreciation rates.
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