Characteristics of a Sufficient Statistic to Measure City Housing Prices

For a variety of empirical purposes, it is important to be able to characterize the levels of and changes to housing prices in cities, whether measured using rents or asset values. This task is complicated by the heterogeneity of the housing stock, the fact that neighborhood is consumed jointly with housing, and differences in accessibility. This paper concentrates on the issue of intracity location which, based on economic theory, is systematically related to housing prices. The final conclusion is that a sufficient statistic to describe both the level of and change in the average housing price requires that prices be aggregated from relatively homogeneous market areas and weighted by characteristics such as units or interior space. Commonly used repeat-sales and hedonic measures of price change are generally not weighted in this fashion, but could be modified to do so.