Hedonic Pricing Model to Value Water Resources in the Arbuckle-Simpson Aquifer

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Wilfred Gaines
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1 Model to Value Water Resources in the Arbuckle-Simpson Aquifer October 3, 2017

2 Data Collection MLS Agricultural/Undeveloped lands in Coal, Garvin, Hughes, Johnston, Murray, Pontotoc, and Seminole

3 Data Collection MLS Agricultural/Undeveloped lands in Coal, Garvin, Hughes, Johnston, Murray, Pontotoc, and Seminole Property Sub Type Address County Acres Zoning Fence Over NE Pontotoc 10 NOT Barbed, Acres 10th Road CITY Full Building Distance Mineral to Rights Lake/River Pasture Road Frontage Road Surface None County Rd Paved Public Remarks Current Closed Price 10 acres on corner of NE 10th $25,000 2/20/2017 & Sliger at Byng. Great building sites!

4 Hedonic Model The hedonic method is an equilibrium analysis, commonly used in evaluating housing markets.

5 Hedonic Model The hedonic method is an equilibrium analysis, commonly used in evaluating housing markets. Housing markets have a unique economic aspect of a bidding process.

6 Hedonic Model The hedonic method is an equilibrium analysis, commonly used in evaluating housing markets. Housing markets have a unique economic aspect of a bidding process. The buyer is attempting to maximize the utility (i.e. the features of the house) while minimizing the price.

7 Hedonic Model The hedonic method is an equilibrium analysis, commonly used in evaluating housing markets. Housing markets have a unique economic aspect of a bidding process. The buyer is attempting to maximize the utility (i.e. the features of the house) while minimizing the price. The seller s role is two-fold as well, maximizing the price and completing the sale.

8 Hedonic Model The hedonic method is an equilibrium analysis, commonly used in evaluating housing markets. Housing markets have a unique economic aspect of a bidding process. The buyer is attempting to maximize the utility (i.e. the features of the house) while minimizing the price. The seller s role is two-fold as well, maximizing the price and completing the sale. The hedonic method assumes that these two approaches will be convex and concave respectively and will tangentially meet when a sale is completed.

9 Hedonic Model The hedonic method is an equilibrium analysis, commonly used in evaluating housing markets. Housing markets have a unique economic aspect of a bidding process. The buyer is attempting to maximize the utility (i.e. the features of the house) while minimizing the price. The seller s role is two-fold as well, maximizing the price and completing the sale. The hedonic method assumes that these two approaches will be convex and concave respectively and will tangentially meet when a sale is completed. Because of these assumptions it can be shown in a perfect market the price function should be linear.

10 Box-Cox Transformation Data is never perfect!

11 Box-Cox Transformation Data is never perfect! price p 1. p

12 Box-Cox Transformation Data is never perfect! price p 1. p Looked at three cases, p = 1 is the linear case.

13 Box-Cox Transformation Data is never perfect! price p 1. p Looked at three cases, p = 1 is the linear case. p = 2 is a kind of distance case.

14 Box-Cox Transformation Data is never perfect! price p 1. p Looked at three cases, p = 1 is the linear case. p = 2 is a kind of distance case. p 0 is a limiting case.

15 Limiting Case Theorem a p 1 lim = ln a p 0 p

16 Limiting Case Theorem a p 1 lim = ln a p 0 p Proof. The limit is best calculated by applying L Hôpital s rule

17 Limiting Case Theorem a p 1 lim = ln a p 0 p Proof. The limit is best calculated by applying L Hôpital s rule and using the derivative of a x, (a x ln a).

18 Limiting Case Theorem a p 1 lim = ln a p 0 p Proof. The limit is best calculated by applying L Hôpital s rule and using the derivative of a x, (a x ln a). Indeed a p 1 a p ln a lim = lim = ln a p 0 p p 0 1

19 Data for Regressions Zoning 1 for Residential. 0 for Agricultural. We also used zero if they listed a zoning code we were not familiar with or did not translate into something useful. Timber Many of the descriptions contained this phrase or a derivative such as timbered. A one was used if either was present and a zero otherwise. Hunting Several descriptions mentioned hunting. A one was used if the word was present and a zero otherwise. Fence 4 for Full, 1 for partial and 0 for none Building If the description contained any mention to buildings, shops, or structures Spring A property description mentioned a spring

20 Data for Regressions Cont. Distance less than 5 miles to Lake/River Only a few entries contained this data in its own column Pond(s) We have included a count for the ponds Rivers One property mentioned having access to a river Pasture Many of the property descriptions included the phrase pasture or some derivative Road Surface The road surface was its own column in the MLS listing. For ease of interpretation, it has been divided into three new columns. Dirt Either a one or a zero depending on the appearance of Dirt Gravel Either a one or a zero depending on the appearance of Gravel Paved Either a one or a zero depending on the appearance of Paved

21 Map Figure: Approximate Position of Data Points

22 Test for Normality: Shapiro-Wilks Test Column p-value Acres Zoning Timber Hunting Fence Building Spring Water Well Distance less than 5 miles to Lake/River Pond(s) Rivers Pasture Dirt Gravel Paved Sale Price Natural Log of Sale Price Quadratic Box-Cox of Sale Price It should be noted that the Nicholas normality C. Jacob of the Hedonic natural Pricinglog of the price will be

23 Linear Regression Adjusted R Coefficients P-value Lower 95% Upper 95% Acres E Zoning Timber Hunting Fence Building Spring Water Well Less than 5 miles to Lake/River Pond(s) Rivers Pasture Dirt Gravel Paved

24 Log-Linear Adjusted R Coefficients P-value Lower 95% Upper 95% Acres E Zoning Timber Hunting Fence Building Spring Water Well Less than 5 miles to Lake/River Pond(s) Rivers Pasture Dirt E Gravel E Paved E

25 Quadratic Adjusted R Coefficients P-value Lower 95% Upper 95% Acres E Zoning Timber Hunting Fence Building Spring Water Well Less than 5 miles to Lake/River Pond(s) Rivers Pasture Dirt Gravel Paved

26 Models Linear price = n a i x i i=1

27 Models Linear price = n a i x i i=1 Log-Linear price = n i=1 e a i x i

28 Models Linear price = n a i x i i=1 Log-Linear Quadratic price = n i=1 e a i x i price = n a i x i i=1

29 Future Work Longer Date Range

30 Future Work Longer Date Range Wider Area

31 Future Work Longer Date Range Wider Area Distance to Walmart

32 Future Work Longer Date Range Wider Area Distance to Walmart Decision Trees

33 Future Work Longer Date Range Wider Area Distance to Walmart Decision Trees Gradient Boosting

34 Future Work Longer Date Range Wider Area Distance to Walmart Decision Trees Gradient Boosting Principle Component Analysis

35 Thanks The researchers would like thank East Central University in Ada Oklahoma, the Oká Institute, and Huckeby & Associates Realtors for their help and support throughout this project.

Property Information Packet

Property Information Packet 106.83 Acres East Lake Rd. Newton, KS 67114 AUCTION THURSDAY, SEPTEMBER 17 TH AT 2:00 P.M. Copyright 2015 McCurdy Auction, LLC 12041 E. 13th Street North Wichita, Kansas 67206