Hedonic-Based Price Indexes for the Housing Market in Italian Cities: Theory and Estimation

We adopt the hedonic approach to develop a price index for the housing market in Italy. The hedonic approach allows to separate the price variations due to qualitative changes of housing attributes from pure price changes, that is the intrinsic real estate price variations. As a result, it produces an index much more robust and accurate than those based on mean prices, which are commonly developed by real estate professionals. Using data from the "Osservatorio del mercato immobiliare" we develop transaction-based indexes for the housing markets of the three largest Italian cities (Rome, Milan and Naples) over the period 2004-2006. Our results confirm at large the general trend of housing prices shown by the simpler indexes currently available in Italy: dwellings in all three cities display prices increasing at a rate largely higher than the general price index with Rome appreciating on average more than Naples and, to a larger extent, Milan. Nevertheless the comparison among indexes points out differences sometimes remarkable in temporal patterns of housing price evolutions