HEDONIC PRICING TECHNIQUES : AN APPLICATION

Abstract

This academic exercise examines the application of the indigenous hedonic price model to Singapore's non-landed private housing market, in particular the rental market. The primary focus is to investigate the effects of various accessibility variables (such as time distance to CBD, work place, market, shops ... ) on monthly rental. As the choice of functional form is a major issue in applications of hedonic pricing techniques, the study uses the Box-Cox procedure to systematically choose an appropriate functional form from the class of functional forms which include the linear and semi-logarithmic forms as special cases. For the data set considered, the "optimal" transformation (1.) of the dependent variable is found to be 0.357. Under this "optimal" transformation, some of the key findings are as follow. The willingness-to-pay for renters' increased proximity to : (i) Head's workplace (measured in dollar per month per unit of time) is found to be $10.70; (ii) Proximity to Central Business District (CBD) -- $26.30; (iii) Proximity to HDB town centre -- $12.50; (iv) An additional bedroom -- $773.45; and (v) A higher level of the unit -- $27.00. These findings guide planners and developers in decisions regarding zoning and housing design. For example, the marginal valuation of an additional bedroom will help developers gain better insights of whether to construct dwellings with two or more bedrooms. The level of the unit can determine the height of the apartment or condominium, which in tum, affects the density of the residential area. The willingness to pay for proximity to the CBD influences the location and zoning of the dwelling too.