A time varying study of water view premiums in relation to residential house prices

Abstract

In contrast to the large body of research that exists on the impact of water view premiums of on the value of residential properties there are relatively few studies that look at how these premiums vary over time. A Water view premium has a significant impact on a residential property's value as indentified in previous studies and therefore understanding the way in which the water view premium behaves over time is of major importance and has significant implications for residential property valuation. This study aims to better understand the behavioural patterns of the water view premiums over time and determine if there are any linkages between market cycles by comparing the movements of the water view premium to the market index and another leading study that looks at water view premiums over time. This study analyses 3842 residential property sales from 4 similar Auckland suburbs for the period from 2005 to 2013. The sales are analysed using hedonic linear regression models with dummy variables for the presence of water views to isolate the water view coefficient for each of the years. The movements of the water view premium is then compared against a market index for the same period and the results also compared against another similar study from an earlier period. The results indicate a strong behavioural pattern between the correlation of the market growth and water view premium growth. A pattern emerges that suggests that for a short time after a market has recovered from a period of major negative growth (a market crash), the water view premium has a period of dramatic positive growth that is greater than the growth of the market. This pattern is also evident when comparing the results to the earlier study.