# RECORD 8b40d59c2cf1fb45e2898b8a9d2bc70967606aa7
# TITLE: Indirect Construction of Hedonic Price Indexes for Private Properties
# YEAR: 2008.0  VENUE: nan  DOI: 10.1007/bf03399268
# AUTHORS: S. Fahrländer
# PAGES: 24  CANDIDATE TABLE PAGES (1-based): [20, 21]
# ABSTRACT: SummaryThis paper analyzes the construction of price indexes for condominiums and single family houses in Switzerland over the period 1985 to 2004 using the indirect method. We find, that the pooling of the data, i.e. direct indexes with fixed hedonic prices, are good models for average properties but can be biased for the indexation of non-average properties. Therefore indirect index construction using predictions for specific properties based on annual equations is recommended.Based on differentiation of forty regions it is shown, that indexes vary from region to region, but show a comparable general path between 1985 and 2004. In recent years prices for single family houses raised in the large urban areas and tourist resorts but, due to big land reserves, were stable or even declined in smaller urban and semi-urban as well as in rural areas. Price paths for condominiums are generally comparable to those of single family houses with the big difference, that over the last three years prices were raising in most of the regions.


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© Swiss Journal of Economics and Statistics 
2008, Vol. 144 (4) 607–630
a 
Fahrländer Partner AG, Uetlibergstrasse 20, 8045 Zürich, Switzerland, +41 43 333 05 55; sf@
fpre.ch.
 
This paper benefited from helpful comments by Robert Leu, Dominik Matter, Klaus Neus ser 
and the editors. The usual disclaimer applies. Special thanks to the data providing Swiss banks 
and insurance companies.
1 
See for example Bender, Gacem and Hoesli (1994), Maurer, Pitzer and Sebastian (2000) 
or Wolverton and Senteza (2000).
2 
As of the 2000 census the home ownership rate in Switzerland was at 34.6%. Today’s rate 
might be 38% to 39% and possibly increase to about 40% by 2010 (see BAK & fpre 2007, 
p. 12).
Indirect Construction of Hedonic Price Indexes  
for Private Properties
Stefan S. Fahrländera
JEL-Classification: C31, R31
Keywords: Hedonic price, private property, direct index, indirect index
1. Introduction
Hedonic models have been widely used in Switzerland by mortgage lenders in 
day to day business for more than a decade. Although estimating today’s market 
values, the companies compile an increasing number of “historic” transaction 
prices together with the characteristics of the private properties. These data allow 
analysis on the construction and estimation of price path of private properties 
in Switzerland.
For modelling the price paths several methods are used in the literature. Pop-
ular but little quality adjusted and therefore susceptible to biases is the indexa-
tion of mean or median prices of sold properties. Recommended are repeat sales 
methods, since the changes of the prices of identical properties are compared.1 
However the problems of ageing and the declining condition or the considera-
tion of refurbishments remain a challenge. In addition, in markets like Switzer-
land with a low home ownership rate and a very small turnover rate of the prop-
erties the use of the repeat sales method is hardly possible since data is simply 
not available.2 Therefore the hedonic method is very popular and widely used in 


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626 
Stefan S. Fahrländer
Appendix
Table A: Robust Estimation Output for Condominiums 2004a
Coefficient
Standard error
Sign. level
Intercept
373.055
72.764
***
macro
0.948
0.008
***
DNWF50
−1.272
0.152
***
LNWF50
1.114
0.035
***
DNWF5075
−0.352
0.164
**
LNWF5075
0.881
0.034
***
DNWF7500
−0.056
0.179
n.s.
LNWF7500
0.820
0.036
***
LNWF0150
0.810
0.017
***
DNWF150P
−0.442
0.146
***
LNWF150P
0.899
0.024
***
bauj
−0.652
0.073
***
bauj2
0.000
0.000
***
stand: 4
0.132 
0.003
***
stand: 5
0.276
0.006
***
micro: 4
0.119
0.003
***
micro: 5
0.283
0.005
***
S.E. residuals
0.120
D.F. residuals
10 345
R2 b
0.965
Note: “.” represents a significance level of 10%, * a 5%, ** a 1% and *** a 1‰ significance level. 
DNWF50 is the dummy for condominiums with a dwelling up to 50m2, LNWF50 the respec-
tive slope. Also see table 1.
a 
For practical reasons, the quarterly coefficients for the regions are not shown.
b 
The robust R2 is calculated as proposed by Rousseeuw and Leroy (1987).


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Indirect Construction of Hedonic Price Indexes for Private Properties 
627
Table B: Robust Estimation Output for Single Family Houses 2004a
Coefficient
Standard error
Sign. level
Intercept
10.194
86.720
n.s.
macro
0.892
0.010
***
DVOL600
−1.566
0.144
***
LVOL600
0.747
0.023
***
LVOL1300
0.507
0.004
***
DVOL2300
−0.760
0.373
*
LVOL2300
0.627
0.051
***
LLA2000
0.002
0.002
n.s.
LLAE250
0.021
0.001
***
DLAE600
−0.301
0.085
***
LLAE600
0.077
0.014
***
DLAE1800
0.055
0.126
n.s.
LLAE1800
0.023
0.019
n.s.
bauj
−0.146
0.087
.
bauj2
0.000
0.000
.
stand: 4
0.123
0.004
***
stand: 5
0.215
0.007
***
micro: 4
0.109
0.004
***
micro: 5
0.289
0.006
***
S.E. residuals
0.121
D.F. residuals
7 163
R2 b
0.937
Note: “.” represents a significance level of 10%, * a 5%, ** a 1% and *** a 1‰ significance level. 
DVOL600 is the dummy for single family houses with a cubic content up to 600m3, LVOL600 
the respective slope. Also see table 1.
a 
For practical reasons, the quarterly coefficients for the regions are not shown.
b 
The robust R2 is calculated as proposed by Rousseeuw and Leroy (1987).


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628 
Stefan S. Fahrländer
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