A Decomposition approach for Assessing Land Leverage and Depreciation Rate on the Real Estate Market – Evidence from Warsaw Poland

Abstract

Most property valuation research concerns entire properties consisting of land and structures. However, different features of land and capital as factors of production determine different patterns shaping their value and their different impact on the total price of real estate. In this article the hedonic decomposition model, which controls for differences in housing quality, is applied to decompose the price of an apartment into the land and structure components. The depreciation rate of housing was calculated and taken into account to properly isolate the dynamics of land over time. This allowed us to compare the house price index with the dynamics of land and structure. The empirical analysis was carried out on the data for the city of Warsaw.

Keywords

• decomposition hedonic model
• housing market
• land leverage
• depreciation rate
• r30
• o18