Spatial hedonic models

In this chapter, we focus on some econometric aspects related to a sub-set of hedonic house price models, which we refer to as spatial hedonic models. In these, the locational aspects of the observations are treated explicitly, and the estimation of the models is an application of spatial econometrics. As defined in Anselin (2006), spatial econometrics “consists of a sub-set of econometric methods that is concerned with spatial aspects present in cross-sectional and spacetime observations." These methods focus in particular on two forms of so-called spatial effects in econometric models, referred to as spatial dependence and spatial heterogeneity. In this chapter we provide a review of the principles underlying the hedonic house price model, and continue to extensively discuss spatial econometric aspects due to spatial models and spatial data specific to house price applications. We review and discuss the treatment of spatial dependence (including space-time dynamics) and spatial heterogeneity with selective illustrations from the empirical literature.