Manya M. Mooya Real Estate Valvation Theory A Critical Appraisal A Springer
Contents 1 Standard Theory of Real Estate Market Value: Concepts and Problems 1 Introduction and Overview 1 Real Estate Valuation 2 The Importance of Real Estate Markets and of the Concept of Market Value 2 Defining Economic Value 5 The Standard Definition of 'Market Value' 6 Real Estate Valuation 7 Theory, Paradigms and Research Programmes 9 The Role of Theory in Knowledge Production 9 Good Theory, Bad Theory 10 Of Paradigms and Research Programmes 11 Neoclassical Economics Foundations of Standard Market Value Theory 12 Rational Choice 13 Füll Information and Homogenous Product. 14 Equilibrium 15 Summary Implications: The Neoclassical Perfect Market. 16 Standard Market Value Theory: Problems and Controversies 16 Crisis in Real Estate Valuation 16 Problems in Valuation Practice 17 Problems of Theory 18 An Alternative Theory 19 Barriers to Progress 19 References 20 2 Aristotle to Marshall: The Evolution of Economic Value Theory... 23 Introduction and Overview 23 The Greco-Roman Period 25 The Middle Ages 27 Mercantilism 29 Physiocracy 32 The Classical School 34 ix
X Contents The Austrian (Marginal Utility) School 36 The Neoclassical and Equilibrium Schools 39 Concluding Comments 40 References 41 3 Neoclassical Economic Theory and Traditional Valuation Methods 43 Introduction and Overview 43 Ontological and Methodological Principles 44 The Sales Comparison Method 46 Sales Comparison and Economic Theory 47 Theoretical and Practical Problems of the Sales Comparison Method 48 The Investment Method 49 Investment Method and Economic Theory 50 Theoretical and Practical Problems of the Investment Method... 51 The Accounts Method 51 The Accounts Method and Economic Theory 52 Theoretical and Practical Problems of the Accounts Method 53 The Cost Method 55 The Cost Method and Economic Theory 55 Theoretical and Practical Problems of the Cost Method 58 The Residual Method 59 The Residual Method and Economic Theory 59 Theoretical and Practical Problems of the Residual Method 61 Conclusion 62 References 63 4 Neoclassical Economic Theory and Automated Valuation Models 65 Introduction and Overview 65 Types of AVMs 66 Hedonic Models 66 Econometric Forecasts 66 Intelligent Systems 67 House Price Index Models 67 Tax Assessed Value Models 67 Automated Valuation Models and Neoclassical Economic Theory... 67 The Regression Function 67 AVMs and Economic Theory 68 AVMs and Rational Choice 68 AVMs and Market Information 69 AVMs, Competition and Equilibrium 70 The Marginalist Roots of AVM Theory 71
Contents Methodology of Automated Valuation Models 73 A Positivist Methodology 73 The Covering-Law Model 74 The Regression Function as General Law. 76 Contrasting AVMs and Traditional Valuation Methods 77 Concluding Comments 82 References 82 5 Real Estate Markets and Neoclassical Economic Theory: A Heterodox Critique 83 Introduction and Overview 83 Heterodox Economic Theory. 84 Critical Realism 84 New Institutional Economics 86 Critique of the Pillars of Neoclassical Economic Theory 89 Rational Choice 89 Equilibrium 90 Positivism 92 The Nature of Real Estate and Real Estate Markets 95 Real Estate as an Economic Good 95 Real Estate Markets 99 Real Estate Markets and Neoclassical Economic Theory 100 Comparing Real Estate Markets and the Perfectly Competitive Market 101 The Efficiency of Real Estate Markets.. 102 Real Estate Markets and Neoclassical Economic Theory: Summary 103 Implications of the Heterodox Critique on the Standard Theory of Market Value 104 Conclusion 105 References 105 6 An Alternative Theory of Market Value: Ontological Foundations 107 Introduction and Overview 107 The Nature of Social Reality: Being and Becoming 108 A Stratified Ontology 109 Mechanisms and Structures 113 The Structure-Agency Problem 116 Social Reality in Practice 118 Real Estate Markets in Reality: A Re-description... 120 New Institutional Economics and Critical Realism 120 Institutions, Transaction Costs and Real Estate Markets 122 Continuum of Real Estate Markets 122 The Paradox of Market Value 127 Concluding Comments 128 References 129
xii Contents 7 An Alternative Theory: Market Value as Convention and as Emergence 131 Introduction and Overview 131 A Realistic Conception of Real Estate Market Value 131 Market Value as Convention 132 Market Value as Emergence 139 Closing the Circle: Market Value as Convention and as Emergence... 143 Concluding Comments 148 References 148 8 Applications to Problems of Theory and Practice 151 Introduction and Overview 151 New Versus Old: Comparing the Alternative to the Standard Theoiy 152 Problems with the Definition, Character and Determination of Market Value 154 Problems of Thin or Absent Real Estate Markets 158 Price Bubbles and Crashes: A Problem of Competitive Real Estate Markets 161 Valuers, Valuation and the 2005-2008 US House Price Bubble 169 Automated Valuation Models Versus Manual Valuations 173 Econometric Porecasting of Real Estate Market Prices 174 Concluding Comments 176 References 177 Postscript 179 Index 181