Hedonic indexes for public and private housing in Costa Rica

Abstract

PurposeThis study aims to show how hedonic methods can be used to compare the performance of the public and private sector housing markets in Costa Rica.Design/methodology/approachHedonic price indexes are computed using the adjacent-period method. Average housing quality is measured by comparing hedonic and median price indexes. The relative performance of the public and private sector residential construction is compared by estimating separate hedonic models for each sector. A private sector price is then imputed for each house built in the public sector, and a public sector price is imputed for each house built in the private sector.FindingsThe real quality-adjusted price of private housing rose by 12 per cent between 2000 and 2013, whereas the price of private housing rose by 9 per cent. The average quality of private housing rose by 45 per cent, whereas that of public housing fell by 18 per cent. Nevertheless, the hedonic imputation analysis reveals that public housing could not be produced more cheaply in the private sector.Social implicationsThe quality of public housing has declined over time. The hedonic analysis shows that the decline is not because of a lack of competition between construction firms in the public sector. An alternative demand side explanation is provided.Originality/valueThis study applies hedonic methods in novel ways to compare the relative performance of the public and private housing sectors in Costa Rica. The results shed new light on the effectiveness of public sector housing programs.