A Micro Level Analysis of Rent Premium, Price Determinants and Submarkets Using Hedonic Model

Abstract

The malleability of the urban housing markets is an indication that price equalisation in the housing market would not hold, to the extent that, reliable housing price measurement would be a difficult task. This paper which is exploratory in nature attempts to examine house prices at a micro level by employing hedonic pricing model to empirically uncover the rent premium and price determinants of Federal University of Technology (FUT) residential staff housing units. The results of the market-wide hedonic model reveal a pecuniary advantage in form of rent premium (N87533) which tenants of FUT owned housing units benefit over tenants who are FUT staff but living in identical units in the free sector. By disaggregating house rental prices, the results of the hedonic model provide insights into the variables which are significant determinants of FUT residential quarters specific rental prices. This paper also provide evidence of a posit FUT owned residential submarket based on significant differential implicit prices which exist between FUT owned residential quarters and those properties which are occupied by FUT staff, but not owned by FUT. This result is considered appropriate as it is further reinforced by comparing the weighted standard error of FUT owned model with the standard error of market-wide model and assessing the significance of the reduction in standard error using chow test.

Keywords: Autocorrelation, FUT, Hedonic model, Implicit price, Rent premium, Submarkets

JEL Classification: C30, R10, R20, R21