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Hedonic Indices and Housing Programme Benefits

Department of Finance and Real Estate at the Kogod College of Business Administration, American University, Washington, DC, USA

The availability of reliable measures of housing programme benefits is important for decisions that planners make about appropriate housing policies. This paper advocates the use of hedonic price estimation techniques for the direct measurement of housing programme benefits in developing countries without restrictive characterisations of housing demand. A market-weighted economic welfare index is used to measure the housing benefits. The benefits are the difference between estimated hedonic price equations before and after the implementation of a programme summed across all households and then multiplied by the cash equivalent of a unit of hedonic value. The cash value of a unit of hedonic value is determined by dividing the observed aggregate market value of houses in an analysis sample by the estimated aggregate hedonic value for that sample. Measuring housing programme benefits from direct market valuation of programme-induced changes in housing attributes does not imply that such programmes are necessarily efficient means of delivering services to residents. Nevertheless, the hedonic approach enables policy-makers to consider the opportunity cost for participants through robust analysis.

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