Hedonic House Prices without Characteristics: the Case of New Multiunit Housing

In this paper we propose an alternative to traditional hedonics for estimating new multiunit housing inflation, adjusting for quality changes. Precise location, transport, traffic, closeness to services, or construction quality are some of the unobserved but typically relevant housing characteristics that may bias estimated house price inflation, even when using hedonic methods. By relying on the within-site variation we control in a very general way for unobserved housing characteristics using site-specific effects. We also estimate standard hedonic equations and compare the results to those obtained with our alternative equations with site dummies to test for biases in traditional hedonic corrections. Our dataset is fairly rich in observable housing characteristics but, nevertheless, the hedonicallyadjusted house price evolution is significantly different. The data cover the construction of new housing in some Spanish cities during part of the 1990s.