House price indexes: The hedonic technique, and some other methods applied to price movements of single family houses in Sweden

The fact that the quality of goods changes over time has always complicated price index calculations. The hedonic technique was originally developed to tackle this problem. From a theoretical point of view the technique offers the best approach to the estimation of changes in ‘pure’ price of single family houses. It is, however, rather expensive and nowhere in abundant use. The purposes of this paper are on one hand to investigate whether the hedonic method may be substituted for some simpler and cheaper method, and on the other to examine the reliability of the ‘official’ price index of Sweden. This is done by comparing the empirical results of different methods with the price estimates of the hedonic technique. The estimated price changes seem to be very sensitive to the method used and none of the alternative methods presented in the paper is capable of superseding the hedonic technique.