Abstract
Summary This paper analyzes the construction of price indexes for condominiums and single family houses in Switzerland over the period 1985 to 2004 using the indirect method. We find, that the pooling of the data, i.e. direct indexes with fixed hedonic prices, are good models for average properties but can be biased for the indexation of non-average properties. Therefore indirect index construction using predictions for specific properties based on annual equations is recommended. Based on differentiation of forty regions it is shown, that indexes vary from region to region, but show a comparable general path between 1985 and 2004. In recent years prices for single family houses raised in the large urban areas and tourist resorts but, due to big land reserves, were stable or even declined in smaller urban and semi-urban as well as in rural areas. Price paths for condominiums are generally comparable to those of single family houses with the big difference, that over the last three years prices were raising in most of the regions.
Highlights
Hedonic models have been widely used in Switzerland by mortgage lenders in day to day business for more than a decade
We find that the hedonic prices change over time but the pooling over a short period is not a major problem
The coefficients for the dwelling (Figure 2) and for the factor standard (Figure 3) for example show strong changes of the hedonic prices over the period observed. This indicates that constant hedonic prices, as usually used in the direct method, are too strong an assumption and indexes of non-average properties are biased when based on the direct method
Summary
Hedonic models have been widely used in Switzerland by mortgage lenders in day to day business for more than a decade. For Switzerland several studies applying the direct hedonic method on private properties have been published in recent years, like the studies of Salvi, Schellenbauer and Schmidt (2004), Scognamiglio (2000), Hoesli, Favarger and Giaccotto (1997), Bignasca et al (1996) and Bender, Gacem and Hoesli (1994).3 These studies have in common the use of the direct hedonic method for the construction of price indexes, i.e. the pooling of the data over the entire observed period and the use of – regionally differentiated – dummy variables for the change of the index over time. The focus of this article is the construction and the discussion of indirect hedonic price indexes for condominium and single family houses in Switzerland and its regions.
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