xls (36.9 kB) Back to table of contentsĪ large amount of data is needed to conduct hedonic regression analysis, and for the purposes of the UK natural capital accounts it also needs to be available on a national scale. We are interested in the role of vegetation in reducingĭownload this table Table 1: Ecosystem services potentially captured by the Hedonic Pricing Method and likelihood of overlap existing service estimates. Whilst noise pollution clearly affects property prices, Potential for overlap, needs additional investigation. Prices, we are interested in the role of air filtration by Whilst air pollution levels do affect property Potential for overlap, although air filtration accountingĮstimates are not modelled at the same localised scaleĪs HPM. Specific uses of it such as garden produce. To the size of a domestic garden but not necessarily Regulation involves averaging across urban areasĪnd focuses on savings in output and energy costs. Local walked trips and the radius used in HPM. There would need to beĬonsistency between the average distance of Value of local recreational trips not incurringĬash expenses, which are not currently included HPM can potentially capture the additional Likelihood overlap with existing service estimatesĭependent upon how health benefits and theĪssociated service are defined and measured. However, further work is needed, in particular interpreting regression results into annual flow and stock values. The results demonstrate it is possible to apply HPM for national statistics. Whilst this assumption cannot be directly tested, the high R-squared (our models explain over 80% of the variance in property prices) suggests that we include many factors relevant to property prices in our models, leaving less room for unobserved heterogeneity. To interpret the coefficients causally, we need to assume that our models capture all variables that influence both property prices and areas of blue and green spaces. We cannot be certain that increasing the amount of green and blue space would result in an increase in property prices. Omitting key determinants of property prices that are correlated with availability of natural amenities may result in biased estimates and the results are sensitive to model specification, therefore care is needed when building the models. Such trips are currently excluded by the expenditure-based method currently used in the UK Natural Capital accounts.Ī limitation of HPM is that to obtain accurate and robust estimates large datasets with very detailed information about property characteristics and the surrounding environment are needed. HPM returns market-based marginal prices of ecosystem services comparable to those used for standard market goods (Day, 2013), which is important for consistency with the national accounts.įurther, data on property transactions and characteristics are readily available and it potentially offers a means of estimating the value of everyday recreational visits to local green spaces that do not require admission fees or the use of public or private transport. Assuming that nature is implicit in property prices, this methodology can then be used to extract values for environmental goods or services from market-based transactions by including measures of access to natural areas in the regression model. HPM can be used to estimate the extent to which characteristics affect price by modelling property prices as a set of explanatory variables, including the structural, socio-economic and environmental characteristics. The most common example of this is property values, where the market price of a property is determined by a combination of structural characteristics (floor area, number of bedrooms, garden, garage and so on) and the socio-economic and environmental characteristics of the surrounding area (quality of schools, access to retail, transport, levels of water/air pollution, proximity to green space and so on) A combination of these characteristics and the external factors that affect the product determines the price. The Hedonic Pricing Method (HPM) relies on the assumption that a class of differentiated products can be broken down in to a number of characteristics. Strengths and limitations of using Hedonic Pricing Method
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