The effect of pipe repairs on housing prices

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School of Economics | Master's thesis
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PURPOSE OF THE STUDY Pipe repair is the most expensive common renovation type in Finland and the number of repairs is growing as the buildings from the 60s and 70s building boom come to renovation age. Although repair costs are significant from the owner's point of view, there is no evidence on how the costs are transferred to housing prices. This thesis examines pipe repair effect on housing prices and transaction volumes. The objective is to see if the market values the costs of the forthcoming repair fairly i.e. whether buyers discount the selling price of the dwelling properly so that the discount covers the costs of future repair. Estimating the repair costs is rather straightforward. Thus pipe repairs offer an excellent opportunity to examine how well people account for future expenditures in the housing market setting. DATA I will study the pipe repair price impact by using apartment transaction and housing company data from Helsinki and Espoo area from the period January 2000 – June 2010. The data was collected from several sources: Oikotie, Kiinteistömaailma, Hintaseurantapalvelu (HSP) and three Finnish real estate managing agencies. The data from the real-estate managing agencies is unique as it was hand-collected with the help of real-estate managers. To my knowledge, I am also the first one to utilize Oikotie data for studying repairs. RESULTS The results show that the market pays excessively for dwellings before and during the repair. Apartment prices start to depreciate six years before the repair but the discount is at no point large enough to account for the discounted value of future pipe repair costs. The results also indicate that the shorter the time from the last pipe repair or alternatively the construction, the larger the dwelling overpricing. The price of the apartment also affects the percentage share of overpricing. Inexpensive apartments are relatively more overpriced before the repair than expensive ones.
pipe repair, housing prices, depreciation, maintenance, putkiremontti, asuntojen hinnat, arvon alentuminen, kunnossapito
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