Hedonic Price Model on real estate: influence of Covid-19 virus on house prices

The housing sector is widely associated with the economic wealth of a nation. This study focuses on the consumption aspect of the housing market and therefore it is crucial to outline and understand the attributes and characteristics that contribute to the value of a good in the real estate market. Literature has shown that the market price of a housing unit can be determined by the buyers’ evaluations of the housing unit’s bundle of inherent attributes, such as locational, structural, or neighbourhood attributes. The most adopted method scholars have been using to model real estate market price is the hedonic price model. Nowadays, since the COVID-19 outbreak, the general economic context is suffering a dramatic reduction in consumption, resulting in a further drop in prices and a decrease in workers’ income per capita and the real estate market will hardly move independently. Moreover, the coronavirus disease possesses unique features with respect to other pandemics because such an event is happening in a globalised and interconnected world, like it never was during previous ones. On 9th March 2020, Italian government imposed a “lockdown” all over the country, and people started to experience homeworking at a worldwide scale. I believe this would lead to a different conception of the house spaces and people are eventually starting to look for properties outside downtown in a way they never did before. Leveraging a dataset provided by Italian Revenue Agency of 7.499 real estate transactions that took place in the province of Turin, Italy, between 2018 and 2021, the purpose of this thesis is to show the difference of the role played by the distance from the central business district on the house prices before and after the spread of the Covid-19 virus, using the hedonic model to control for the variance explained by the other housing attributes. I also believe that the quality of the internet coverage in an urban area plays a significant moderator role in such a model, as people may have incentives in buying bigger houses at lower prices per square meter, still such an effect is empowered (respectively weakened) in case of a good (respectively bad) internet connection.