Age, time, vintage, and price indexes: measuring the depreciation pattern of houses

Age, time, and vintage are key determinants of house prices, yet they cannot be included together linearly or as dichotomous variables in hedonic regressions as construction time + age of house = sale time. We introduce a method where the estimates of the age, time, and vintage effects on prices are obtained in a flexible manner, without requiring us to specify a pre-determined functional form for any of these variables. Applying our method to Dutch data, we find that the estimated depreciation pattern over the life of houses does not follow the functional forms typically specified for the age of houses in hedonic regressions. (JEL C43, E01, E31, R31)
I. INTRODUCTION It is well known that time of sale, product age, and cohort--three temporal variables--cannot all be included linearly or as dichotomous variables in hedonic regressions because of the [...]