“Location Location Location” Wise Maxim or Clever Hoax?

Abstract

Median prices for individual suburbs in Australian capital cities are frequently quoted in the popular press as a measure of price change between geographic areas. This raises several interesting questions. Are these observed price changes truly representative of factors influencing prices autonomous within the specific suburb? Alternatively, are these changes the result of common factors that may be observed across several suburban areas during contemporaneous measurement periods? Are these reported price changes of any statistical significance? This paper empirically tests some of these questions. A rich data set of transactions for ten individual suburbs in the city of Perth, Australia for the period 1988 – 1999 is used. Quarterly hedonic price indexes are created for each individual suburb and tested for accuracy. Standard parametric and non-parametric statistical methods are used to test for significant differences between the ten suburb groupings. The results confirm a low number of statistically significant differences and the existence of a ‘pricing size effect’ as a determinant of house price change.