Measuring capital's contribution to housing services production

by Kevin Neels, C. Peter Rydell

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Two alternative measures of residential capital are developed in this paper: a transformation market value that is unbiased and a hedonic index that is also unbiased. The paper attempts to solve some of the major problems that have hampered efforts to measure capital's contribution to the production of housing services. Three alternative measures of capital input levels are presented. One is an estimate of the current market value of improvements to the property. The second is an estimate of current-period capital service flows derived from the value of improvements with the help of a theoretical model of the factors that influence improvement values. The third is a measure of capital service flows derived from the hedonic attributes of residential properties. The measures are evaluated by comparing the results using Cobb-Douglas models.

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