Hedonic Price Indexes for the Housing Market in Italian Cities

Abstract

To develop a price index for the housing market in Italy, we adopt the hedonic approach which enables us to separate the price variations due to qualitative changes in housing attributes from pure price changes, i.e.intrinsic real estate price variations. The resulting index is much more robust and accurate than the mean price indexes commonly used by real estate professionals in Italy. Using data from Italy’s Real Estate Observatory we develop transaction-based indexes for the housing markets of the three largest cities (Rome, Milan and Naples) in 2004-2006. Our results generally confirm at large the general trend of housing prices shown by the simpler indexes currently available: dwellings in all three cities display prices increasing considerably faster than the general price index, with values in Rome appreciating on average more than in Naples or Milan. Nevertheless the comparison among indexes shows sometimes remarkable differences in time patterns. JEL Classification number: C4, R2