Conventional Methods in Housing Market Analysis: A Review of Literature
Conventional Methods in Housing Market Analysis: A Review of Literature
INTRODUCTION
The housing market is very imperative because of the place it holds in the
economy (Seo, 2008). Housing construction easily contributes to the Gross
Domestic Product (GDP) and its market has a direct impact on the national and
international economy (Hu, Cheng, Wang, & Xu, 2013). Consequently, immovable
characteristics of housing (Renigier-Biłozor, Biłozor, & Wisniewski, 2017), its
location (Cichociński & Dąbrowski, 2013), its importance in the broader economy
(Hill & Scholz, 2017), the growing urban population coupled with rising problems
of adequate and affordable housing and complex human settlement (UN-Habitat,
2011) and several factors that determine housing price (Mohammed & Sulyman,
2019a) necessitate different approaches to a housing market analysis.
Scholars have adopted and developed several conventional methods for the
housing market analysis (Mohammed & Sulyman, 2019a). These methods include:
hedonic model (Yusuf & Resosudarmo, 2009), logit model (Brounen & Kok, 2011),
matched pair audits method (Hanson & Hawley, 2011), spatial approach
(Mohammed & Sulyman, 2019b), space syntax (Xiao, 2012), dynamic general
equilibrium model (X. Li & Tang, 2018), agent-based model (Ge, 2017), analytical
hierarchy process (Tupenaite, Kanapeckiene, & Naimaviciene, 2017), multiple
regression model (Wickramaarachchi, 2016), local projection method (Cameron,
2018), ordinary least squares (Zhang & Zhao, 2018), cluster analysis (Guan & Gao,
©2020 Musa Zango Bello, Mohammed Lekan Sanni, Jibrin Katun Mohammed.
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1. METHODOLOGY
The study adopted an archival research methodology where the focus of the
research was on a review of empirical studies on the conventional methods in the
property market analysis. Thus, the required data for the study were based on
secondary sources obtained from academic journals, conference papers, and thesis
from both printed and online sources. Studies with clear methodologies were
selected. The process is presented in Fig. 1.
2. FINDINGS
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Hedonic Model
The hedonic approach is one of the most used conventional approaches to the
housing market analysis (Sopranzetti, 2015). Using the hedonic approach,
expenditures on housing can be decomposed into measurable prices and quantities,
so that rents for different dwellings or identical dwellings in different places can be
predicted and compared (Malpezzi, 2002; Meese & Wallace, 1991; Sopranzetti,
2015). This approach has been adopted by several authors in analysing the housing
market (Abdullahi et al., 2018; Anselin & Le Gallo, 2006; Goodman & Thibodeau,
1995; Helbich, Brunauer, Vaz, & Nijkamp, 2014; Liao & Wang, 2012; Lu, 2018;
Oladunni, Sharma, & Tiwang, 2017; Sandmo, 2014).
For example, Lu (2018) examined the relationship between the view orientation
of an apartment and its property value in the context of the Shanghai housing
market. The author used a hedonic pricing model and a unique dataset, comprised
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Spatial Approach
One reason house prices may be spatially autocorrelated is that property values
in the same neighbourhood capitalize on shared location amenities. Location
characteristics that influence house prices include neighbourhood characteristics,
accessibility, and proximity externalities (Basu & Thibodeau, 1998). The spatial
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approach has been adopted by several authors in analysing the housing market
(Basu & Thibodeau, 1998; Delbari, Afrasiab, & Jahani, 2013; Diao, 2015; Dubin,
1998; Dubin, 1992; McCluskey, Deddis, Lamont, & Borst, 2000; Moral, 2008; Tu,
Sun, & Yu, 2007; Wang et al., 2017; Chao Wu, Ye, Du, & Luo, 2017; Zhang, Sun,
& Stengos, 2018).
For example, Zhang & Tang (2016) analysed spatial patterns of housing prices
in Chinese cities with an emphasis on public attention. They argued that
unavailability or ill-documented detailed housing price data posed a serious
challenge for the housing price assessment in China. They also argued that web
search engine records of individual search activities and the analysis of these data
in cyber-space might provide an insight into understanding of public attention and
how it was associated with real geographic space. Through the analysis of the web
query activities based on the Baidu Index, spatial patterns of public attention on
housing prices were explored. In achieving this objective, a new index based on
keyword query outcomes was proposed, where spatially heterogeneous patterns of
housing price attention were analysed using the Baidu search database with a focus
on 19 Chinese cities, including large and medium-sized cities. The spatial network
structure of housing price attention was evaluated and a new index was developed
to measure the extent of interaction relationships among the studied cities. The
results of the evaluation of the spatial interaction of housing price attention among
the cities in the new method were consistent with those from a gravity model. The
Baidu Index-based indicators showed strong spatial relationship patterns among the
cities, which formed urban agglomerations. Their results further demonstrated that
the web search engine approach, combining both cyber-space and geographic
space, provided a basis for the assessment of the housing price attention and its
spatially explicit patterns in China.
Kuntz & Helbich (2014) compared the accuracy of the prediction of univariate
kriging variants, namely universal kriging (UK) and detrended kriging (DK), and
multivariate extensions, including universal cokriging (UCK) and detrended
cokriging (DCK). Both later techniques consider neighbourhood and structural
characteristics as auxiliary variables. While the UK and DK price surfaces showed
nearly identical cross-validated accuracies, the cross-validation-based prediction
accuracy of DCK and UCK differed in favour of the latter. They suggested that
either UK or DK could be used by real estate agencies for a univariate sample of
property prices, while UCK was recommended for a multivariate case, although
numerically more complex.
Li, Ye, Lee, Gong, & Qin (2017) argued that there was fast-paced development
in China’s real estate industry in recent decades. However, there are spatial
imbalances between urban economic growth and that in both rural and urban areas,
excessive growth and house price fluctuations attracted public attention. They
argued that the focus of urban and regional economic research had shifted to these
issues. An efficient, reliable, and accurate housing price prediction remains much
required and disputable issue. Consequently, several studies emerged due to the
trends and changes in the financial market, urbanisation processes, and population
migration, to examine the determinants of housing price fluctuations. They
examined the spatiotemporal trends of the housing price fluctuation in the big data
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context, where data from China’s leading online real estate platform (sofang.com)
were used. Spatial data analytics and modelling techniques were adopted to identify
housing price spatial distribution at the micro-level, spatiotemporal dynamics of
houses in the housing market, and assess the geographic disparity of housing prices.
Their results revealed the spatiotemporal patterns of the housing prices in a large
metropolitan area, demonstrating the importance of big data and how big data could
be handled.
Helbich et al. (2014) investigated single-family houses by modelling spatial
heterogeneity (SH). They argued that the capabilities of the global and locally
weighted hedonic model were explored using single-family house prices in
Australia. They suggested that even if SH model could not be fully conducted using
regional indicators and that unmodeled SH required technical amendments, the
results emphasised their importance in a reliable model. Since the SH is beyond the
level of regional indicators, it brought about processing locally weighted
regressions. For instance, limitations of fixed effects are prevented by mixed
geographically weighted regression (MGWR) by exploring price effects that are
both spatially stationary and non-stationary. Apart from prediction error reduction,
they suggested that the misspecifications of the global model arose from improper
selected fixed effects. They found out that regional indicators and purely local
models could not be compared with SH implicit prices in terms of complexity.
Iliopoulou & Stratakis (2018) analysed housing prices in the Greater Athens
region employing data for the structural and locational characteristics of dwellings.
They used a sample from the total housing supply in 2017 and included several
thousand dwellings for sale available by online real estate agencies. A description
of the houses was provided in terms of their structural characteristics, such as the
type of a dwelling, size, floor, number of bedrooms, parking, etc. Also, several
characteristics relative to the location of dwellings, such as distance from the closest
metro station or distance from the city center, were calculated in a GIS environment.
Due to the spatial dependency of the residuals in the ordinary least squares method,
a spatial regression model (geographically weighted regression) was also presented,
which improved the accuracy of the prediction. They concluded that most locational
characteristics did not contribute significantly to the explanatory power of a
regression model when compared to structural characteristics.
Chen (2018) examined spatial differentiation of urban housing prices in
Guangdong province in China and factors influencing housing prices. Spatial
heterogeneity of housing prices and that of their impact factors were examined
during the period of 1995–2015 using ESDA and GWR models. The study found
out that a certain circle structure was shown in the spatial structure of housing prices
in the region. While relatively high housing prices were found in the Pearl River
Delta region, there was a high disparity between housing prices of Zhongshan,
Huizhou, and other cities. The price of housing in the cities of northern, western
and eastern Guangdong was low, which showed a significant high variation from
the housing prices of cities in Pearl River Delta, also Shantou and its surroundings
had a high difference between the housing prices.
Ajayi, Nuhu et al. (2015) analysed the relationship between housing conditions
and rental value using a spatial approach. Spatial network analysis was adopted by
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Xiao, Webster & Orford (2016) in assessing house price effects of changes in urban
street configuration. Similarly, Mohammed and Sulyman (2019b) examined spatio-
temporal dynamics of the housing market in Bida, Nigeria. This approach is widely
used and not free from criticism but much adopted in the literature of the housing
market by urban planners (Xiao, 2017). This model is more acceptable in the
literature by urban planners and is a trend in real estate research.
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Mixed Methods
Housing market analytical methods are combined in the literature of the
housing market to have robust results. These combinations are attributed to some
shortcomings in the application of single methods or models. For example, a
principal components analysis is usually combined with the regression model to
reclassify factors that determine a rental value into groups of significance.
Regression analysis and geographic field models are combined to analyse the
effects of locational factors on the housing prices of residential communities. Zhao
(2018) used a cross weight coefficient and regression models to analyse the
relationship between a fertility rate and housing price. The month-based model and
the hedonic model were combined by Bérard and Trannoy (2018) to assess the
impact of the 2014 increase in real estate transfer taxes on the French housing
market. Some other authors combined the hedonic model and spatial approach
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techniques to analyse the housing market. For example, Chung, Seo & Kim (2018)
combined the spatial approach and the hedonic model to analyse price determinants
and GIS analysis of the housing market. The same combination was adopted by
Cui, Gu, Shen & Feng (2018).
Paz & McGreal (2018) used the price index and the hedonic model to compare
different results of housing price indices. Zhang & Zhao (2018) determined the
informal housing price in Beijing using ordinary least squares and multi-level
hedonic models. Principal component and lagged sentiment proxies were combined
by Zhou (2018) to examine the interaction between housing market sentiment and
government interventions. Latinopoulos (2018) examined the effect of sea view on
room rates alongside other structural and locational attributes where GIS system
was used to apply a spatial hedonic model. A semi-parametric geographically
weighted regression model was used to assess the local effects, as well as to
investigate the spatial variability of the selected attributes.
A combination of methods continues to be seen as the best approach in
analysing a housing price by urban planners and real estate experts. However, an
artificial neural network is given less attention in this regard.
3. DISCUSSION
The hedonic model is one of the most used methods/models in the housing
market analysis (Mohammed & Sulyman, 2019a). Research from the developing
world has proven that the hedonic model is widely used (Gambo, 2012; Malpezzi,
2002). The findings of this review proves that multiple regression models and
hedonic models require combination with other methods such as a principal
component analysis to enhance factors responsible for housing prices. For example,
the house price index was constructed by Wu, Deng & Liu (2014), and
Wickramaarachchi (2016) using the hedonic model and multiple regression model,
respectively. Their models were exaggerated because they included those factors
that were much less significant; this was because they could not reduce the factors
to minimal significant factors. The findings of the review also prove that spatial
analytical models in the housing market analysis have some shortcomings where in
most cases the models are exaggerated most especially the spatial autocorrelation
models (Xiao, 2012). The study shows that authors in developing countries applied
the multiple regression model, hedonic model, and spatial analysis in analysing a
housing price. For example, Abdullahi et al. (2018), Ajayi et al. (2015), and
Oluwadamilola (2017) applied the multiple regression model in analysing the rental
value of residential housing. For the hedonic model, Kemiki, Ojetunde & Ayoola
(2014), Adegoke (2014), and Gambo (2012) analysed housing prices with it.
Authors also adopted spatial analytical techniques for housing price analysis. For
instance, Mohammed & Sulyman (2019b) adopted spatial autocorrelation to
develop spatial and temporal housing price model. Spatial autocorrelation was also
adopted in analysing residential rental values (Ajayi, Nuhu et al. 2015). Artificial
neural network as a machine learning model has been adopted by many researchers
of the housing market due to its high predictive ability and sorting of data into
different layers based on their significance. It is said to be better than multiple
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regression and hedonic models due to its predictive potential and performance, and
a better alternative for prediction of house prices (Limsombunc et al., 2004; Selim,
2009). It also has capabilities in analysing and predicting housing market
performance (Khalafallah, 2008). Artificial neural network is not free from
criticism but can be better when combined with the spatial approach. Artificial
neural network is given less preference in developing world literature of the housing
market.
CONCLUSIONS
In conclusion, methods that are widely used in the literature of the housing
market are the multiple regression model, hedonic model, spatial approach,
artificial neural network model, and mixed methods. The hedonic model is one of
the most used methods/models in the housing market analysis in the developing
world. The adoption of the hedonic model is attributed to the shortcomings of the
multiple regression model. Spatial analytical models in the housing market analysis
used in housing market research also have some shortcomings where in most cases
the models are exaggerated, most especially the spatial autocorrelation models.
Artificial neural network is better than multiple regression and hedonic models due
to its predictive potential and performance, and a better alternative for prediction of
house prices. The model has a high predictive ability and can reclassify data without
requiring other analytical methods. Spatial models would be better when combined
with an artificial neural network. Artificial neural network is given less preference
in the developing world literature of the housing market. It is therefore
recommended to adopt the artificial neural network in the housing price analysis
for better housing policy formulation in developing nations.
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Musa Zango Bello attended Sabongida Primary School, Bida, Nigeria between 1983 and 1989, and
he obtained secondary education from Government Secondary School, Maikunkele, Minna, Nigeria.
He obtained a Bachelor degree of Technology and a Master degree of Technology in Estate
Management from the Federal University of Technology, Minna, Nigeria in 2006 and 2015.
M. Z. Bello worked as a Manager at Moshood Mustapha and Co. in Minna, Niger State from 2004
to 2005 and as a Estate/Marketing Manager at Urban Shelter Limited from 2008 to 2013. He is
currently a Lecturer at the department of Estate Management, Baze University Abuja, Nigeria.
M. Z. Bello is a member of the Nigerian Institute of Estate Surveyors and Valuers.
Address: Department of Estate Management, Baze University, Abuja, Nigeria.
E-mail: [email protected]
ORCID iD: https://orcid.org/0000-0002-5471-4696
Dr Mohammed Lekan Sanni attended Ansar-ud-Deen High School, Saki, Oyo State, Nigeria first
between 1979 and 1984 for his secondary education and later between 1984 and 1986 for his
Advanced Level (Higher School Certificate). He is a graduate of Geography and Planning from the
University of Lagos, Lagos, Nigeria in 1990. He obtained a Master degree of Urban and Regional
Planning from the University of Ibadan, Ibadan, Nigeria in 2000 and later a PhD degree in Urban
and Regional Planning from the Federal University of Technology, Minna, Nigeria in March 2017.
Dr L. M. Sanni worked as a Lecturer at the Department of Town Planning of the Polytechnic, Ibadan,
Nigeria between January 2002 and June 2006. He is currently a Senior Lecturer at the Department
of Urban and Regional Planning, Federal University of Technology, Minna, Nigeria. His areas of
research interests include housing, urban governance and disaster risk management; areas in which
he has published extensively in both local and international journals.
Dr L. M. Sanni is a member of the Nigerian Institute of Town Planners and a registered town planner.
Address: Department of Urban and Regional Planning, Federal University of Technology, Minna,
Nigeria.
E-mail: [email protected]
ORCID iD: https://orcid.org/0000-0001-8090-0997
Jibrin Katun Mohammed attended Abubakar Anike Model Primary School, Bida, Nigeria from
1991 to 2006. He obtained a Senior Secondary School Certificate in 2003 and a Bachelor degree of
Technology in Estate Management and Valuation from the Federal University of Technology,
Minna in 2014. Currently, he is a Postgraduate Student at the Master (M.Tech) level, Housing and
Urban Renewal in Urban and Regional Planning Department, Federal University of Technology,
Minna. J. K. Mohammed worked as a GIS Consultant at the Department of Estate Management and
Valuation and Department of Urban and Regional Planning, Federal Polytechnic, Bida between
2016 and 2019. He is currently a Lecturer at the Department of Estate Management and Valuation,
Federal Polytechnic, Bida, Nigeria.
Address: Department of Urban and Regional Planning, Federal University of Technology, Minna,
Nigeria.
E-mail: [email protected]
ORCID iD: https://orcid.org/0000-0002-3365-230X
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