What drives the Gap? - Price Differences between Single Family Homes and Apartments

Abstract

Purpose - Most studies on real estate focus on one of the housing sectors, i.e. single family homes or apartments. On average, single family houses have higher prices compared to apartments. This work looks at a relative price trend between the two asset groups, as well as its dynamics. In order to disclose information about the sources of potential changes in preferences the gap is decomposed.Design/methodology/approach - Using data form Berlin, Germany this contribution disentangles the mark-up between SFH and APP by the usual housing characteristics, amenities and socioeconomic variables. Following the majority of the hedonic literature in real estate research the analysis starts with a semi-log hedonic model. Different spatial economic approaches verify the results. Finally the Oaxaca decomposition technique is applied to distinguish between the different determinants of the observed gap.Findings – The hedonic regression results confirm earlier studies for most explanatory variables. It is shown that preferences between SFH and APP change over time, mostly driven by a higher preferences for amenities for APP and higher evaluation of the larger floorspace of SFH. Originality/value –The approach allows to estimate price indexes for real estate assets which are not dependent on the general price level or inflation. The novelty lies in filling a literature gap regarding the explanation of the price gap between single family homes and apartments.