Property Price Gradients: The Vertical Dimension

Abstract

This is an empirical study on the vertical dimension of multi-story buildings – floor level and building height. The idea of price gradients in a monocentric city was borrowed to investigate floor-level premiums, which are the price paid for the vertical location (i.e., a higher floor level) of a building. Previous hedonic price studies unequivocally showed that the floor-level premium is positive, but they were silent on whether the premium is: 1) constant across different floor levels within the same building; 2) constant across different buildings given the same floor level; and 3) neutral to the height or density of a building. The knowledge of floor-level premiums is important to developers, as it can help determine the height of their development. Based on a sample of highly homogeneous housing units in buildings of varying heights, we found that the floor-level premium was not constant, but diminished as floor level increases. Moreover, there was no significant difference in the pattern of the floor-level premium between high-rise and low-rise buildings. Finally, there was a positive and significant premium for units in low-rise buildings over those in high rise ones.