CA4229 Semester B 2017/18

Land Use Planning &

Applied Valuation
25 January 2018
Week 2
Land Use Planning &
Hedonic Price Analysis
(& Assignement )
Murakami, Jin
Assistant Professor
Department of Architecture and Civil Engineering
City University of Hong Kong
Today’s Outline 00

• Land Use Planning & Property

Values
• Hedonic Price Model
• Assignment 2: Question
• Assignment 2: Team
Land Use Planning &
Property Values
Property Values? 01
 People’s willingness to pay for the
property (private goods).

 The value reflecting the aggregate

quality of a bundle of various
attributes.

 The value revealed through fair

competitions in the real estate markets.

Key Conditions to Realize Efficient Valuation:

1. Property Rights (to be private goods)

2. Enough Information for All Stakeholders (both sellers and buyers)
3. Enough Numbers of Stakeholders (to be fair competition)
Property Attributes (Internal) 02
Design Parameters?
 Area & Floor
 # of Rooms
 Age of Building
 Common Space
 Equipment & Technologies

$$???
Construction Attributes 03
Construction Efficiency
Construction Costs ($)
Sales ($)
Rents ($)
Contract & Service Attributes 04
Seasonal Effects 05
Changes in Housing Price Index, Government Actions & Social Events

Macroeconomics & Macro‐geographic

Project vs. Planning Unit 06
$ $ $ $ $ $ $ $ $
$

One Building Project District Planning Strategic Territorial Planning

Greater Values (Collective Asset Values)

More Land Use Coordination

Land Use Planning? 07
Development
Controls
Building Controls:
Ensuring minimum standards to
protect public safety, health &
welfare
Planning Controls:
Enforcing planning rules
developed by local, regional, or
national town planners to meet
basic design criteria

Strong Public Interventions

in Market Activities
Multiple Elements 08
Property Value
= Internal Physical Attributes +
Internal Service Attributes + Seasonal
Effects + External Attributes
(including Public Goods,
Externalities, and Local Specificities)
 Importance of Land Use Planning
Hedonic Price Analysis
Hedonic Pricing 1 09
 A method used to estimate economic values for
ecosystem or environmental services that directly
affect market prices.
 It is most commonly applied to variations in residential
land or housing prices that reflect the value of local
environmental attributes.
Hedonic Pricing 2 10
 The basic premise of the hedonic pricing method is that
the price of a marketed good is related to its
characteristics, or the services it provides. For
example, the price of a car reflects the characteristics
of that car—transportation, comfort, style, luxury, fuel
economy, etc. Therefore, we can value the individual
characteristics of a car or other good by looking at how
the price people are willing to pay for it changes when
the characteristics change. The hedonic pricing
method is most often used to value environmental
amenities that affect the price of residential properties.
Hedonic Pricing 3 11
 hedonic demand theory is basically a revealed
preference (RP) method of estimating demand or value.
 The analysis decomposes one item (value) being
researched into its various characteristics, and obtains
estimates of the contributory value of each
characteristic.

$ $
$
Decomposition 12
 Internal structure (attributes of housing itself)
 Neighborhood attributes
 Public services (infrastructure too)
 Location relative to desirable places (where?)
 Environmental goods (air quality and noise)
 Zoning codes

$ $
$
Multiple Housing Prices? 13
 Price Assessed by Specialists
 Price Asked by Sellers
 Price Bid by Buyers
 Price Transacted between Sellers and Buyers
Open‐Small Assumption 14
To conduct accurate hedonic pricing analysis on the impact of
one development project , the case must assume the following
two conditions:

The regional property market

must be opened to every potential
buyers
The project must be relatively
small in comparison to the
region’s size.
Advantages 15
• The method’s main strength is that it can be used to
estimate values based on actual choices.
• Property markets are relatively efficient in
responding to information, so can be good indications
of value.
• Property records are typically very reliable.
• Data on property sales and characteristics are readily
available through many sources, and can be related
to other secondary data sources to obtain descriptive
variables for the analysis.
• The method is versatile, and can be adapted to
consider several possible interactions between
market goods and environmental quality.
Issues and Limitations 1: 16
• The scope of environmental benefits that can be
measured is limited to things that are related to
housing prices.
• The method will only capture people’s willingness to
pay for perceived differences in environmental
attributes, and their direct consequences. Thus, if
people aren’t aware of the linkages between the
environmental attribute and benefits to them or their
property, the value will not be reflected in home
prices.
Issues and Limitations 2: 17
• The method assumes that people have the
opportunity to select the combination of features
they prefer, given their income. However, the
housing market may be affected by outside
influences, like taxes, interest rates, or other factors.
• The method is relatively complex to implement and
interpret, requiring a high degree of statistical
expertise.
• The results depend heavily on model specification.
• Large amounts of data must be gathered and
manipulated.
• The time and expense to carry out an application
depends on the availability and accessibility of data.
Regression Model 18

P = 0 +  1Z1 +  2Z2 +  3Z3 + t +

P: Market Transaction Price [$ per sq ft]
Z1: Internal Attributes
Z2 : External Attributes
Z3 : Other Attributes
t: data year (panel data only)
0: constant
1, 2, 3,  : parameters
: error term
Cross‐Sectional vs. Panel 19
• Cross‐Sectional Data (One Time)
• Panel Data (Time Series) *adjusted by CPI
(Inflation or deflation effects)
Intervention

With A A’
$500 $500

Without B B’
$400 $420

Before After
Ordinary Least Squares 20
Regression Criteria 1 21
R-squared (R2):
a statistical measure of how close the data are to the fitted
regression line. R-squared = Explained variation / Total
variation. R-squared is always between 0 and 1.
t-score:
To test “null hypothesis” -- there is no relationship
between two measured phenomena
Regression Criteria 2 22
The p-value is used in the context of null hypothesis
testing in order to quantify the idea of statistical
significance of evidence.

General Thresholds (Sig.):

P<0.01: very strong presumption against neutral hypothesis
0.01<P<0.05 : strong presumption against neutral hypothesis
0.05<P<0.1: low presumption against neutral hypothesis
0.1<P: no presumption against the neutral hypothesis
Issue 1 23
Multicollinearity
means redundancy
in the set of
variables. This can
render ineffective
the numerical
methods used to
solve regression
regression equations
Do not include similar and too many
independent variables in your model
Issue 1 24
Multicollinearity
A Correlation Table among Variables (xi)

Y X1 X2 X3
Too high!
Y 1.00 0.61 0.74 0.42 (about 83% similarity)

We need to
X1 1.00 0.11 0.83 drop either X1
or X3 from the
price model
X2 1.00 0.21

X3 1.00
Issue 1 25
Multicollinearity
Variance inflation factors (VIF)
Use to measure and describe how much multicollinearity exists in an analysis.

VIF Status of predictors

VIF = 1 Not correlated

1 < VIF < 5 Moderately correlated

VIF > 5 to 10 Highly correlated

Issue 2 26
Spatial Autocorrelation

Statistically
Problem !
Why?
Spatial dependency of sample points (property transactions)
violates standard statistical techniques that assume
independence among observations.
Difficult to overcome this issue competently
Assignment
Question
Course Evaluation 27
Final Examination(50%)
Team Project (50%) :
Price Data Analysis
Report (25%)
Presentation (25%)
 Week 12 & 13
Hedonic Price Analysis 28
You (as a team of about 5‐6 students) are now
asked to conduct one hedonic price analysis to
valuate properties and draw key town
planning/land policy implications for Hong Kong or
any other cities.

Each team is supposed to submit one consolidated

report and make an in‐class presentation (about 15
minutes) in Week 12 & Week 13.  10‐12 Teams
Unique Case in Hong Kong 29
Within Each Team Study Area (Influenced
Area)
Landmark,
station,
interchange,
port,
greenspace, 500m~2km
Infrastructure
Etc…
Case

Property Transaction
Each student collects 20
points ( 7 students * 20
= total 140 points +for
one team).
Describe brief backgrounds of the case and study area
Software 30

Google
Earth

IBM SPSS

MS Excel
Data Preparation 1 31
Google Earth

Draw the boundary of each property and save the polygon as one KML file.
Data Preparation 2 32
Obtain property transaction data from the website “centamap.com”.
http://hk.centamap.com
Data Preparation 3 33
X 20 cases
per student

X 140 cases
per team

Write down all internal characteristics (e.g., price, floor area, age,
floor, etc) on an Excel/SPSS table with unique IDs (e.g., 1~140).
Data Preparation 4 34
https://proptx.midland.com.hk/utx/default.jsp?lang=en&_ga=2.211100243.714773272.1516255
820‐727991822.1505033972
Difference in the Same 35
Sample The values of individual physical features

‐ Size
‐ Floor (/F)
‐ Number of Rooms
‐ Number of Bath Rooms
‐ View (e.g., Ocean vs. Mountain)
‐ Semi‐Private Area for the room

Boundary of Development
*Comparisons within one property development
(e.g., one residential tower)
(among individual rooms)
Difference between Similar 36

Without With
Common Green Space Common Green Space
‐ Size
The values of ‐ Floor (/F)
internal physical features ‐ Number of Rooms
+ ‐ Number of Bath Rooms
common green space ‐ View (e.g., Ocean vs. Mountain)
‐ Semi‐Private Area for the room
‐ Common Green Space (1/0)
*Comparisons between two similar properties
Difference in Different 37

Case

The impacts of
one urban development
on other different properties
(neighborhoods)

*Comparisons among different properties

Data Preparation 4 38

Specify any external conditions, such as important landmarks, MTR

stations, Public Transportation Interchange, public parks, highways,
community facilities, ocean lines etc… in the same district with
your team members.
Data Preparation 5 39

Measure the straight distances between the edge of your project

sites and the external objectives specified. Also record those
distances on the SPSS/excel table.
Data Preparation 6 40
e.g., “View”
Mountain view *difficult to quantify

Tower

Add any “qualitative” Waterfront /Bay view

attributes (1/0 dummy) to
each transaction point
Regression Datasets 1 41
Linear
Regression Datasets 2 42
Semi‐Log

Dependent variables
be (natural) logged.
Regression Datasets 3 43
Full‐Log

Both Dependent and Dummy variable must

Independent variables NOT be logged.
be (natural) logged.
Coefficient 1 (Linear) 44

*Price Absolute Change to Feature Amount Change

($/sq f) (m, sq f)
Coefficient 2 (Semi‐Log) 45

*Price % Change to Feature Amount Change

(%) (m, sq f)
Coefficient 3 (Log‐Log) 46

*Price % Change to Feature % Change

(%) (%)
Descriptive Statistics 47

1
Regression Result (Table) 1 48
LINEAR R squared = 0.404
means the model can
explain 40.4 % of the
property transaction
prices (to be 1.000 =
100% accurate)

P‐value indicates how

much the independent
variable affects the
price. This figure
should be lower (p‐
value <0.05) or be
dropped from the
model
Regression Result (Table) 2 49
Semi‐Log
Regression Result (Table) 2 50
Log‐Log
Elasticities
% price change if 1 %
change in X
(generally less than 1.00. If
more than 1, it would be
the issue of
multicollinearity)
VIFs 51
VIFs 2 52

Automatically
report VIFs for
independent
variables in the
model results
Data Analysis 53
Discuss the net impacts of various physical design and
neighborhood attributes on property transaction prices
and draw some property business, land policy, town
planning implications for Hong Kong or any other cities.
Report Submission 54

Submit one HARDCOPY of your main

report file in the final class (Week 13)
or Dr. Murakami’s office (Academic1
P6424, by 10 April)
Report Format 55
Your team product should be outline by the following headlines:

1. Front Page
2. Background of the District
3. A List and Brief Backgrounds of Properties
4. A Property Location Map (from KML)
5. A External Objectives Location Map
6. A Descriptive Statistics Table
7. Results of Hedonic Price Analysis (*3 Tables)
8. Discussion of the Results (*Analytical)
9. Planning & Policy Implications &
10. References

The main report should not be over 15 pages (*single‐spaced, 10~12

points font size).
In‐class Presentation 56
Schedule
• Week 2: 25 January 2018 Set up teams
• Week 12: 19 April, 2016  5~7 teams
• Week 13: 26 April, 2016  5~7 teams

In‐class Presentation
• Prepare one MS Power Point file (about 10~15 slides).
• Make a presentation in the final lecture (10~15 minutes
for each team including Q&A).
• The outline of your presentation should be the same
format as that of your report (*follow the Headline
2~8).
 Assignment
Team Organization