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A Hedonic Model of House Prices in the Greek Islands

A Hedonic Model of House Prices in the Greek Islands. Dimitra Kavarnou University of Reading d.kavarnou @ pgr. reading.ac.uk Supervised by: Dr. Anupam Nanda Prof. Sotiris Tsolacos. Idea. This research examines the impact of local public amenities on house prices in the islands of Greece

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A Hedonic Model of House Prices in the Greek Islands

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  1. A Hedonic Model of House Prices in the Greek Islands Dimitra Kavarnou University of Reading d.kavarnou@pgr.reading.ac.uk Supervised by: Dr. Anupam Nanda Prof. Sotiris Tsolacos

  2. Idea • This research examines the impact of local public amenities on house prices in the islands of Greece • By taking the Greek islands as the case study, we are trying to identify the significance and the influence on the house prices (assessed values) of several public amenities for 36 Greek Islands • The model also controls for several structural and locational characteristics of the properties as well as economic and demographic attributes of the islands

  3. Why this Research - Aim • It is an application of Hedonic Modeling on housing by controlling the public amenities (port, airport, hospital, university) and tries to identify the significance of their: • presence • time distances from the house properties On the housing prices of the islands • It has never been contacted before a research on the housing market of the Greek Islands • It tries to explain variables and factors that the evaluators are influenced by in terms of amenities but they are not aware (not included into their criteria/list)

  4. Why this geographical area • The islands of Greece constitute a unique area on the planet as they are hundreds pieces of land in the sea belonging in the same nation (laws, policies, tradition, culture, economy, etc.) but with lots of different characteristics • Isolated – difficult to approach areas • Very heterogeneous market – housing submarkets (tourism rates, employment) • Why these 36 islands out of hundreds Criteria: • Permanent population 1,000 people/island (resent census 2011) • Minimum number of observations 15-20p. To each island • Excluded the 2 biggest islands of Greece (Crete and Evvoia – separate research)

  5. Where? Greece

  6. Where? North East Aegean Sea Islands Ionian Islands Sporades Islands Argo Saronic Islands Cyclades Islands Dodecanese Islands

  7. Groups & Islands - I 1. Ionian Islands

  8. Groups & Islands - II 2. Sporades Islands

  9. Groups & Islands - III 3. Argo Saronic Islands

  10. Groups & Islands - IV 4. Cyclades Islands

  11. Groups & Islands - V 5. North East Aegean Sea Islands

  12. Groups & Islands - VI 6. Dodecanese Islands

  13. Literature Review - I • Housing Market Attributes in General: • The heterogeneity of a housing market (the differentiation of the locations, the islands, the amenities, the tourism rates, the employment, etc.) • The external effects in a housing market (the several characteristics that are observed but not fully controlled or measured) • The immovability of the housing market (that increases the demand for amenities) • The durability of a market (by examining the course of a housing market in the long run) • The political economy (the bundle of regulations, policies and taxes) • The imperfect information about a market (that lead to hidden defects) • The transaction costs (that lead to lagged market adjustments and to the intermediaries’ presence) (Kain and Quigley, 1975; Xu, 2008)

  14. Literature Review - II • The Need for Public Amenities and their significances in every housing market • Globally • For difficult to approach areas (such as the islands) – the significance of fast commuting • Transportation (Ports/ Airports) • Hospital Social Care (Prefectural General Hospitals) • Higher Education (Universities) (Schools are not in the scope of this research by making the assumptions that: a) all islands have public schools of all levels, b) private schools are not taken into consideration, c) no family would commute/ migrate from an island for better school provision) (Wu et al.; 2013, Wenjie et al.; 2010, Davies and Robb;1998, Royle, 1995, Webster; 2001, Prideaux; 2000, Carvalho et al.; 2010) • The Community Structure of the hundreds of islands (trade, defence, architectural rules, etc.) (Dimitropoulos; 2001)

  15. Methodology - I • Hedonic Regression Method (The method that decomposes the dependant variable under the scope into its constituent characteristics, and obtains assessments of the contributory value of each specific characteristic) (Rosen; 1974, Roback;1982, Bajari and Benkard; 2005) In this research, the dependant variable (Y) is the Assessed Housing Prices - AHP or P for every property (i) , island(j), group of island(k) Pi,j,k = α + ∑β Xi,j,k + εi,j,k In order to mitigate the problem of heteroskedasticity as well as to compare percentage-wise the effect on the Assessed Housing Prices (1) log(Pi,j,k)= α + ∑β Xi,j,k + εi,j,k

  16. Methodology - II But Τhere are also island characteristics for each island (j): (2) log(Pi,j,k) = α + ∑β Xi,j,k + ∑γZj,k + εi,j,k Controlling the Fixed Effects for each island: (3) log(Pi,j,k) = α + ∑β Xi,j,k + δj + εi,j,k (Boundary fixed effects model: Black;1999, Clapp, Nanda and Ross; 2008) where δ is the total unobserved effects for each island (j) - dummies Τhere are also group of islands characteristics - Controlling the Fixed Effects of eachgroup of islands (k): (4) log(Pi,j,k) = α + ∑β Xi,j,k + ∑γZj,k+ Δk+ εi,j,k where Δ is the total unobserved effects for each group of islands (k) - dummies

  17. Data - I • Two files from the Bank of Greece including properties in the islands that have been evaluated from 2005-2013 with property characteristics: The property characteristics (Xi,j,k) included are: • Some details about the property location (not exact) • The living space (m2) • The land area (m2) • The date/year of permit, completion, evaluation • The property type (flat/detached house/ maisonette) and the floor • Some information about the construction quality, the neighbourhood, the view (limited) • Some information about the store rooms and the parking spaces

  18. Data - II Limitations of the dataset • Not exact location (address/number, to many cases only local toponyms of settlements) • Either because of incomplete dataset But • Mainly because the properties in the Islands do not have an address themselves but they refer to the closest village/settlement • With this very limited information about their location, it was VERY difficult and time-consuming to spot the properties and calculate their distances from the amenities (ports/airports) • Lots of missing/ incomplete values from the evaluators (view, land, year of completion/permit)

  19. Data - III • Data Set Cleaning: Out of the 14,937 properties I received, I excluded: • 3,620 properties in Evvoia and Crete (separate analysis – research) • 850 approx. duplications • 500 approx. did not concern properties on islands (incorrect entries) • 3,000 approx. to which the land area was not available • 300 approx. to which the year of completion or the year of permit was not available (not able to calculate the age of the property) • 300 approx. concerned islands with population<1,000p. or islands with insufficient number of observations/island (<15) 6,350 properties approx. in 36 islands to be spotted and calculated • 2,000 properties approx. not able to spot/ find the approx. location of the closer village in Google Earth/ Google maps 4, 369 properties spotted in the final dataset

  20. Data - IV Spotting the properties in Google Earth (approximately)

  21. Data - V

  22. Data - VI Calculating time distances in Google maps to port: to airport:

  23. Data - VI • The population data come from the Publication of provisional results of the 2011 Population Census (Source: Hellenic Statistic Authority) • The following data – island characteristic variables (Zj,k) where collected by a travel agency (Express Holidays): • Sea Transportation: • The travel duration from each island to the capital (slow and fast boat – in minutes) • The travel durationfrom each island to the closestmainland (slowand fast boat- in minutes) • The cost of travel from each island to the capital (slow and fast boat – in €) • The frequency of travel to capital (slow and fast boat, summer and winter – in travels/week) • Air Transportation: • The duration of the flight from each island to the capital airport (Athens) • The cost of flight from each island to the capital airport (average) • The frequency of flights to capital(summerand winter – in travels/week)

  24. Data Analysis - I • Extracting all the useless entries • Google Earth due to lack of information of the property location I couldn’t use GIS as well as • Google maps cause it is the only one calculating the time distances* I couldn’t use GIS • E-Views for every island separately • Stata for the big model of all islands • …to be continued… • *For the islands it is meaningless to calculate the km distances since: • They are not comparable from island to island (different ground morphology, traffic, road conditions, etc.) • They are relatively small • After locating the properties, I created 2 new property characteristic variables (Xi,j,k) which are the: • a) Time distance to the port • b) Time distance to the airport Time Agenda

  25. Data Analysis - II • Property Utilisation Ratio: • Age: • If the year of completion is available then: • If the year of completion is not available then: **2 is the average duration of construction for housing properties in Greece (Source: BoG) Age ≥ 0 (the properties that were evaluated prior to their completion, i.e. age<0, their age is considered as 0)

  26. Data Analysis - III • Deflation of Assessed Housing Prices The Prices are deflated and expressed in December 2012 prices: where: HICPDec2012= 123.28 HICPt = the HICP of the month year of the evaluation (Source of the HICP tables: Hellenic Statistic Authority) • Dummy Variables Xi,j,k for the property types: • Flat • Detached House • Maisonette

  27. Data Analysis - IV • Dummy Variables (Zj,k) for controlling: • The Presence of Airport on the island • The Presence of Prefectural General Hospital on the island • The Presence of University on the island • Dummy Variables (δj) for the fixed effects - controlling the unobserved heterogeneity of the islands (one dummy for each island) • Dummy Variables (Δk) for the fixed effects - controlling the unobserved heterogeneity of the groups of islands (one dummy for each group)

  28. RESULTS - I

  29. RESULTS - II

  30. RESULTS - III

  31. RESULTS - IV

  32. RESULTS - V

  33. RESULTS - VI

  34. RESULTS - VII • For all islands the living space is positively very significant to the prices (1% significance level) 1% increase in living space0.52-1.06% increase to the prices ( 0.74% increase - weighted average) • For some of the islands the land space is positively significant (1% or 5%) (For 16/36 islands including all Ionian Islands, Skopelos-Sporades, Salamina-Argo Saronic, Lesvos and Limnos-NE Aegean, Syros, Tinos and Milos-Cyclades, Rhodes, Patmos, Kos and Leros-Dodecanese Islands) 1% increase in the land area 0.09-0.27% increase to the prices (0.15% increase - weighted average) • The Property Utilisation Ratio is relatively not significant for most of the islands (gardens/yards not significant) • The floor number is relatively not significant for most of the islands

  35. RESULTS - VIII • The property type (flats/detached houses/ maisonettes) seems to be very significant for most of the islands Detached housesto 14/36 islands negatively very significant (1-5%) compared to flats i.e. The flats are moreexpensive compared to detached houses – probably because flats are located to the islands’ capitals the proximity to the capital is very important for these islands Mainsonettes to 7/23 islands negatively very significant (1-5%) compared to flats i.e. The flats are more expensive compared to maisonettes – probably because they are located to the islands’ capitals and the proximity to the capital is very important for these 7 islands Mainsonettes to 5/23 islands positivelyvery significant (1-5%) compared to flats i.e. The flats are less expensive compared to maisonettes – probably because of their construction/ property characteristics/ extra facilities/ landscape

  36. RESULTS - IX The Age is negatively very significant (1-5%) for most of the islands (22/36) Every Additional Year 0.3-1.5% decrease of house prices (0.69% decrease - weighted average) Regarding the time distance of the properties to the ports/ airports: Time Distance to Port: For the biggest islands (big distances) the time distance to the port is negatively very significant (1-5%) - the closer to the port, the more expensive - apart from specific cases (eg. Lesvos) For the smallest islands (not very big in size) or the islands that are relatively close to the capital the time distance to the port was not very significant - apart from specific cases (eg. Paros – Milos - Salamina) Time Distance to Airport: For some of the islands the time distance to the airport is positively very significant (1-10%) – the closer to the airport the less expensive - apart from specific cases (eg. Milos) - Probably because of the noise and disturbance.

  37. RESULTS - X Ionian Islands • Corfu Negative Significance to the port*** (1%) i.e. the closer the property to the port, the more expensive. Positive Significance to the airport*(10%) i.e. the closer the property to the airport, the less expensive. • Kefallonia Negative Significance to the port** (5%) i.e. the closer the property to the port, the more expensive – 3 main ports No Significance to the airport • Lefkada No Significance – Road Connected Island • Zante • No Significance – Villages are gathered to The South East part – no big distances • Ithaki No Significance to the port – Small island

  38. RESULTS - XI Dodecanese Islands • Rhodes Negative Significance to the port*** (1%) i.e. the closer the property to the port, the more expensive. Positive Significance to the airport***(1%) i.e. the closer the property to the airport, the less expensive • Kos & Kalymnos Positive Significance to the airport**(5%) i.e. the closer the property to the airport, the less expensive – Medium Sizes islands (population &geographical size) with very busy airports (6th and 9th airports of the country) • Patmos/ Symi/ Astypalaia/ Karpathos/ Leros No Significance Smaller Islands/ Smaller distances

  39. RESULTS - XII Argo Saronic Islands • Salamina Negative Significance to the port*** (1%) i.e. the closer the property to the port, the more expensive. It is the island closer to Athens (only 15mins by boat) – people live in the island and commute to Athens to work, so very big influence to the house prices because of the Port. • Spetses/ Ydra No Significance Small Islands/ small distances In these 2 islands cars are not allowed (distances are calculated by car for comparison purposes) – motorbikes are allowed

  40. RESULTS - XII Sporades Islands • Skiathos Negative Significance to the port* (10%) i.e. the closer the property to the port, the more expensive. Positive Significance to the airport**(5%) i.e. the closer the property to the airport, the less expensive – Small sample • Skopelos & Alonnisos No Significance to port - Small Islands – Small Distances • Skyros • No Significance to port/airport Small island/distances

  41. RESULTS - XIII North East Aegean Sea Islands • Chios Negative Significance to the port** (5%) i.e. the closer the property to the port, the more Expensive - No Significance to the airport • Lesvos NO Significance (???) Compared with Corfu & Rhodes (similar size, population, distance from capital-mainland) Rhodes has the 3rd bigger airport of Greece and Corfu the 5th while Lesvos’s airport is not in the top 10 list. So, people prefer to travel to Lesvos by boat. Corfu is 45’ by boat from the mainland While Lesvos is 13h!!! So, port is not significant either. • Samos No Significance – 2 main ports • Limnos & Ikaria No Significance

  42. RESULTS - XIV Cyclades Islands - Are ALL relatively close to a main port of Athens • Not very big islands (in terms of time distances on • the islands) NO Significances Expected to the ports BUT • Paros Positive Significance to the port***(1%) i.e. the closer the property to the port, the less expensive!!! • probably because the port is located in a town called “Paroikia” • while there is another much more expensive and cosmopolitan • town called “Naousa” which is far away from the port • Milos Positive Significance to the port**(5%) i.e. the closer the property to the port, the less expensive! – the capital is not close to the Port Negative Significance to the airport*** (1%) i.e. the closer the property to the airport, the more expensive – the most beautiful beaches and landscapes are at the South side of the island close to the airport • Syros/Tinos/Thira/Kea/ Kythnos/ Amorgos/ Andros No Significance

  43. log(Pi,j,k) = α + ∑βXi,j,k + ∑γZj,k+ Δk+ εi,j,k log(Pi,j,k) = α + ∑β Xi,j,k + δj+ εi,j,k log(Pi,j,k)= α + ∑β Xi,j,k + εi,j,k log(Pi,j,k) = α + ∑β Xi,j,k + ∑γZj,k + εi,j,k RESULTS – XV – Big Model

  44. What’s next? Improve the Big Model with all the islands included by trying many combinations of island characteristics (Zi,j,k) as well as the Fixed Effects Specify Splines in the Age and Living Space and the time distance to port/airport Variables Interpret the exact effect of every variable on prices Group the results in different groups and combinations of islands

  45. Any Questions? Comments please… Thank you

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